By Elzio Barreto
HONG KONG (Reuters) - Investment banks are encouraging Chinese companies to meet their equity funding needs by selling shares to small groups of investors, as they seek ways to recoup fees lost due to a suspension of mainland IPOs since July.
In September alone, Huadian Power International and Everbright Securities Co have raised $2.4 billion through this route.
And financial services firm Shenwan Hongyuan Group, battery maker Fengfan Co and coal company Wintime Energy Co are planning to raise nearly $7 billion in similar deals in coming months, regulatory filings this month show.
"The company wins, with longer term shareholders that want slightly more concentrated positions through a club deal," as the private share sales are also called, said a Hong Kong investment banker, who did not want to be identified.
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Though fees on private share sales are lower than those for initial public offerings (IPOs), fewer banks are involved in arranging such deals than IPOs, making them profitable for banks. Big asset managers and pension funds typically participate in such deals.
China has been the biggest Asia-Pacific IPO market in recent years after Beijing lifted an earlier clampdown on new listings and as companies needed capital to support their rapid growth.
Investment banks were hopeful of robust equity capital market (ECM) fees in 2015 from the Asia-Pacific region, where IPOs jumped 15 percent through mid-September from the year-earlier period to $45 billion and looked poised to end the year near a record level.
But those expectations were dashed when China's stocks bull run suddenly reversed course in June, casting a pall on Asia-Pacific IPOs as a whole. So far in September only $231 million worth of new listings have been launched in the region.
WAITING GAME
State-owned bad debt manager China Huarong Asset Management and snack maker Dali Foods Group late last month won approval for their Hong Kong IPOs, slated to raise up to $4.5 billion in total. But instead of marketing the deal straight away, they have decided to wait for better market conditions, bankers said.
The same holds true for China Reinsurance and China International Capital Corp, which will only market their $3 billion of deals next month.
Block share deals and the sale of convertible bonds have also dwindled, dimming their outlook for the rest of the year.
To offset the drop in China business, banks are aiming for more deals in markets that have fared relatively better.
These include India, where Interglobe Aviation and Coffee Day Enterprises plan October IPOs to raise nearly $600 million in total, and the Philippines, where property firm D.M. Wenceslao and Associates is targeting a $480 million listing next month.
Another fee-generating avenue for the banks is pre-IPO financing. India is becoming an active market there too, with taxi-hailing service Ola recently raising $222.5 million.
Chris Marschall, head of North and South Asia ECM for CIMB Securities, said companies are doing what they can to tie up their funding needs while waiting for the IPO market to rebound.
"They may also consider additional pre-IPO rounds, which will push their listing further down by several months," he added.
(Reporting by Elzio Barreto; Editing by Lisa Jucca and Muralikumar Anantharaman)
