Rival bankers wrangle over credit for Chinese megadeals

Asia's dealmaking league tables have become the subject of unprecedented wrangling between rival bankers over who deserves credit for working with China's state-owned enterprises.

Reforms to China's sprawling state sector offer investment bankers the opportunity to secure lucrative fees. In July, Beijing announced plans to boost efficiency and improve governance - a process in which private investment is set to play a key role.

But bankers and data compilers report a series of fights over who has been given credit for the two megadeals involving Chinese SOEs so far: Sinopec's $17.4bn sale of a 30 per cent stake in its retail business and Citic Group's injection of $37bn in assets into its Hong Kong-listed unit.

These disputes centre on how much advisory work banks really did - as it would be understood in the US or Europe - and how much of the total deal value they should therefore be given credit for.

At stake are the banks' positions in the M&A league tables this year. For example, if the value of the Citic deal is removed from Dealogic's M&A rankings for Asia-Pacific excluding Japan, Morgan Stanley drops to sixth from fourth and loses almost a quarter of its credited deal value. Similarly, if the Sinopec deal is not counted, Goldman Sach's top of the table lead shrinks from $17.7bn to $3.4bn.

Citigroup is the only bank in this year's top four - it ranks as number two to Goldman, and ahead of Bank of America Merrill Lynch - not to have taken a lead role on either deal.

"Part of the challenge was determining where genuine advisory work was done," said Finance Asia, a widely read Hong Kong based trade publication.

Many deals in Asia can be pre-arranged between business tycoons or by different state-owned enterprises, leaving bankers with roles more akin to administration than corporate strategy.

This affects the fees that the enterprises are willing to pay, bankers claimed.

"You don't need to pay for the best advice if you already know exactly what you're going to do," said one senior M&A banker, who noted the number of so-called "arranged marriages" between China's state-owned units.

However, the banker added: "If we're talking cross-border M&A, then they do pay and they do appreciate the advice."

Recent cross-border deals involving Chinese groups include Lenovo's $2.3bn purchase of IBM's server business at the start of the year and its $2.9bn deal for Motorola, finalised in October. OCBC's $5bn purchase of Hong Kong's Wing Hang Bank is also cited by bankers as another example of "proper" dealmaking.

More contentious, however, was Temasek's purchase of a $5.7bn stake in Watson's, Li Ka-shing's fast-growing pharmacy chain. This deal switched within days from being a probable initial public offering of Watsons in Hong Kong and London to a done deal with the Singapore investment agency - prompting suspicions that the decision making was influenced by a top-level contact rather than a bank.

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