By Julie Steinberg 
 

A spate of bids by Morgan Stanley and other Western banks offering to charge zero or unusually low fees for some of their work on a Hong Kong initial public offering is raising questions about the increasing competitiveness of the city's IPO market.

Bankers this week pitched for telecom-infrastructure joint-venture China Tower Corp.'s IPO, which is expected later this year and could raise as much as $10 billion. According to people familiar with the matter, Morgan Stanley said it wouldn't charge anything to work as a sponsor on the deal, a role that includes conducting due diligence and shepherding the company through the listing process. The bank can still later collect lucrative underwriting fees, however, which are separate.

Goldman Sachs Group Inc., Bank of America Merrill Lynch and UBS Group AG were among the banks that bid on the lower end to be a sponsor, people familiar with the matter said. Two offers came in at 100,000 yuan and 360,000 yuan, respectively, far below a typical sponsor fee.

Banks are being forced to compete aggressively because companies looking to list in Hong Kong consider proposed fees when awarding sponsor roles. Sponsor fees tend to be minimal in general, but banks have a better chance at scoring underwriting roles if they become sponsors on the deal first.

Some industry participants, surprised at Morgan Stanley's bid, said offering to work for free runs counter to guidance from the city's securities regulator. Some lawyers said the rules don't expressly prohibit such offers, and that sponsor fees often get rebated anyway when underwriting commissions are paid.

 

Write to Julie Steinberg at julie.steinberg@wsj.com

 

(END) Dow Jones Newswires

June 15, 2017 13:23 ET (17:23 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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