Related: Bank of China plans to issue no more than 10 billion A share
         Bank of China to start HK public offering

    BEIJING, May 18 -- Goldman Sachs and UBS will split the lion's share of roughly US$250 million worth of fees for the US$9.8 billion initial public offering (IPO) of Bank of China (BOC), one of the last big Chinese privatizations in the foreseeable future.

    Goldman and UBS are working with Bank of China's own BOC International investment banking unit on the June 1 listing, which could potentially be the largest Chinese IPO ever and carry underwriting fees of around 2.5 percent, rival bankers say.

    The deal would also cement Goldman's position as the top stock underwriter in non-Japan Asia Pacific this year and push UBS up one spot into No. 2, according to calculations based on data provided by Dealogic.

    Industrial & Commercial Bank of China (ICBC), the mainland's top bank, aims to raise US$12 billion in a listing later this year and it has already tapped its underwriters as the Central Government wraps up its latest privatization program.

    With Chinese State-backed banks, insurers, telecommunications and energy companies all listed on exchanges in Hong Kong, New York and London, investment banks have already been hunting through China's private sector for a new pool of IPO candidates.

    "We are interested in second-tier (IPO) markets, for instance, the Tianjin Port IPO ... we can still make profits in the second-tier markets," said Rob Morrison, CEO of CLSA, the investment banking arm of French bank Credit Agricole.

    Tianjin Port Holdings is raising up to US$139 million through CLSA and ABN AMRO.

    Those firms have established unique Asian franchises by looking for opportunities outside multi-billion dollar privatizations, a market where Goldman, Merrill Lynch, Morgan Stanley and a few others have fought furiously to win business.

    A case in point was the recent battle to woo ICBC, which eventually went to China International Capital Corp. (CICC), Credit Suisse, Deutsche Bank, Merrill and ICBC's own investment banking arm.

    Morgan Stanley, which worked on last year's US$9.2 billion China Construction Bank's IPO, is also in the mix as part of a consortium with CICC.

    Fee structures on such deals can get complicated. Bank of China, for example, has drawn in "strategic investors" including Hong Kong's Wharf Holdings and Hutchison Whampoa Ltd. to the tune of nearly US$2.2 billion.

    Listing companies will frequently fight it out with their underwriters over how much to pay in fees for strategic investor stakes, arguing that they should be priced below typical market rates of 2.5 to 3 percent of deal proceeds.

    However, bankers not involved with the Bank of China deal expected the fees to fall in a respectable 2 to 2.5 percent range.

    To be sure, big investment banks don't live on "elephant" deals like Bank of China alone.

    Hong Kong's IPO pipeline currently includes lots of smaller offerings like the US$800 million Champion REIT (real estate investment trust) listing, the US$1 billion IPO of Shui On Land and a REIT from Sun Hung Kai Properties expected to fetch around US$400 million.

    Bank of China held a monopoly on the nation's foreign-exchange dealings and overseas banking from 1949 to 1994.

    UBS AG, Europe's largest bank by assets, and Temasek, the Singapore government's investment arm, together own 6.6 percent of Bank of China, according to a sale document released May 11 by Bank of China.

    (Source: Shenzhen Daily/ Agencies)