(Bloomberg) -- A lack of recent multibillion dollar deals made the race for a role on CATL’s Hong Kong listing even more competitive, despite low fees for bankers and a US blacklisting hanging over the world’s biggest battery maker.
Top banking brass such as HSBC Holdings Plc Chairman Mark Tucker pitched directly to the Chinese company, full name Contemporary Amperex Technology Co. Ltd., while others shelved deals they were working on to focus instead on landing CATL, which is expected to raise more than $5 billion in Hong Kong.
“When you’ve had a prolonged deal drought, it’s critical to be on the first big ticket,” said Craig Coben, a veteran investment banker who was one of Bank of America Corp.’s most senior capital markets executives until he retired in 2022. “This would be a must-win for any bank.”
Christmas and Lunar New Year holiday plans went out of the window for some bankers pitching for work and descending on CATL’s headquarters in Ningde in Fujian province, where it was founded in 2011. Decades before, in the late 1980s, Chinese President Xi Jinping was the local Communist Party chief. Xinhua News Agency described Ningde as a “backward mountainous prefecture” then.
Now, Ningde is home to a globally dominant battery maker. CATL accounts for more than a third of shipments of electric-vehicle batteries, according to Seoul-based SNE Research Inc. With clients including Tesla Inc. and Volkswagen AG, CATL’s 2024 net income is estimated to have reached as high as $7.3 billion.
Getting on ‘Bright 8’
Parts of this article are based on conversations with people involved in the negotiations, who asked not to be identified so that they could speak freely.
CATL’s share sale has been dubbed “Bright 8,” an apparent nod to a lucky number in Chinese culture. It filed its listing application on Feb. 11, saying the funds would be used to expand in Europe, specifically a battery factory in Debrecen, Hungary serving customers including BMW AG, Stellantis NV and VW.
At over $5 billion, Bright 8 is likely to be Hong Kong’s biggest listing since TikTok Inc. rival Kuaishou Technology Co.’s initial public offering in 2021, bringing a major boost to a market that’s just emerging from the doldrums.
Hong Kong IPO proceeds, including mainland-traded companies selling shares in the city, plunged to a more than two-decade low in 2023. They rose to $11.2 billion in 2024, still far from from the 10-year annual average of about $30 billion before the Covid pandemic, data compiled by Bloomberg show.
CATL has been trading on Shenzhen’s stock exchange since 2018. The company’s market value is $163 billion, its shares rising over 70% in the past 12 months.
It isn’t that unusual for senior executives to pitch for landmark deals, but the extent to which bankers went to secure mandates on CATL’s Hong Kong share sale reflects how tough things have become after the slump in activity.
JPMorgan secured a role as sponsor on the listing by CATL, whose Chairman Robin Zeng attended a conference organized by the US lender in Shanghai last year. Others on board include BofA, China International Capital Corp., CSC Financial Co., Goldman Sachs Group Inc., Morgan Stanley and UBS Group AG. A representative for HSBC, which didn’t get a role yet, declined to comment. CATL and JPMorgan also declined to comment on this article.
CATL’s bake-off — when banks compete for roles in a deal — took place on Jan. 2. Days later, CATL was among Chinese companies added to a Federal Register preventing them from supplying the US military for alleged links to China’s military, which CATL denies. While the US move carries no specific sanctions, it discourages American firms from engaging with those on the list.
Tight Fees
Banks still vied to muscle in on the listing, agreeing to work for fees of just 0.2% of the deal size as a base. They could then make 0.6% in incentive payments from the issuer and 1% from the brokerage fee paid by investors.
That’s much lower than issuers typically pay for so-called A-H deals, where companies that trade A shares in mainland China sell stock in Hong Kong as H shares. The dearth in deals exacerbated competition.
Banks tend to have to fight over fee pots by showing who brought in the most cornerstone orders, according to Coben. “Chinese clients like to keep the banks uncertain and on their toes as they think it drives them to perform,” he said.
Wall Street lenders are likely to continue facing low fees this year, given a large chunk of the pipeline for Hong Kong includes A-H listings, which pay less than traditional IPOs. And with the onshore market largely shut off for fresh share sales, Chinese banks are turning their focus more intently to Hong Kong.
For the CATL deal, the next phase should see bankers moving on from the mountains and tea plantations of Ningde to other corners of the globe, as they try to pull in investors for the sale and secure some very welcome business.
--With assistance from Manuel Baigorri and Danny Lee.
