CHEAPER BY THE DOZEN
Asia’s IPO market was red-hot last year, but bankers’ fees remain comparatively low – for now.
By Cesar Bacani

Where in the world are investment bankers willing to give CFOs a discount? The answer, surprisingly, is Asia ex-Japan. The region was the world’s second- hottest spot after Europe for initial public offerings in 2006, but the fees charged on average for those IPOs were just 2.6% of the total proceeds raised, only slightly higher than Europe’s 2.5%. Deal fees in North America (primarily the US) were 5.4%. Average fees in Japan amounted to 4.8%.

The higher levels are historically the going rate for fees in the US, according to researchers at Thomson Financial, the group that compiled the data. Alain Le Couedic, vice president and director at The Boston Consulting Group, suggests that fees are lower in Asia because a high volume of IPOs is a recent phenomenon in the region. “Large investment banks are realizing the market potential and may be willing to accept compressed pricing to get a foot in the door with key clients,” he says. “Once you have a relationship on, say, IPO or M&A work, you are in a good position to discuss other products down the road.”

China was the most vibrant source of IPOs with 133 deals. (One of them was Chinese bank ICBC, which raised US$21.9 bn, the largest IPO ever.) On average, the newly listed mainland companies paid US$9.7m in advisory and underwriting charges, the second highest in Asia, followed by Hong Kong (US$6.6m), South Korea (US$5.4m) and the Philippines (US$4m). There were some anomalies. In politically torn Thailand, the average fees charged for an IPO was a whopping US$12.4m.

Thomson estimated what individual investment banks earned in IPO fees using a proprietary algorithm developed by US consultancy Freeman & Co for the many instances where fees were not disclosed. The results should interest the region’s CFOs. Goldman Sachs, Credit Suisse, Deutsche Bank, UBS, and Merrill Lynch charged the highest fees, on average. JPMorgan and Morgan Stanley had the lowest average charges, and mid-sized CLSA was cheaper still. Let the bargaining begin.