Jack Ma. Picture: BLOOMBERG
Jack Ma. Picture: BLOOMBERG

Hong Kong — Goldman Sachs Group and Bank of America were left off Ant Group’s upcoming stock sale in Hong Kong because of their past work with rivals of its affiliate Alibaba, according to people familiar with the matter.

Bankers have been told by senior executives at Alibaba Group Holding, which owns a third of Ant, that they should refrain from doing deals for its competitors if they want business from Jack Ma’s sprawling empire, the people said. Ant has kicked off plans to go public in Hong Kong and Shanghai in offerings that could top Saudi Aramco’s record $29bn initial public offering (IPO).

The directive shows that Wall Street banks are having to make early bets on which firms to stick with in China, especially as juggernauts such as Alibaba and Tencent Holdings extend their tentacles into hundreds of businesses in finance, transportation, retail and entertainment.

“The duopoly issue is not unique to China, but the scale and scope of Alibaba and Tencent’s business operations create an excruciating dilemma for investment banks,” said Andy Mok, a senior research fellow at the Center for China and Globalization in Beijing. “Alibaba and Tencent’s businesses are so big, you can risk being blocked out of a significant future revenue stream.”

While bankers everywhere have to be careful doing work for their clients’ rival firms, Chinese conglomerates are taking it to a new level. Even though banks have firewalls to ensure separate teams handle deals for the likes of Alibaba and Tencent, that’s proving to not be enough, the people familiar said.

Chinese clients are much more likely than their counterparts in the US or Europe to demand non-compete commitments as a show of loyalty, and to ensure that sensitive strategies don’t land in the hands of competitors. And with fewer deals to go around, bankers in the hypercompetitive Chinese market have little choice but to comply.

Though minor distribution roles on Ant’s Hong Kong IPO are still up for grabs, those don’t offer the outsized fees that banks can expect from leading the sale.

“Competition has increased and Chinese issuers have strong bargaining power,” said Bob Dodds, who worked as an investment banker at China International Capital before setting up DRP Capital to advise on China-related deals.

Goldman and Bank of America’s recent work with Alibaba rivals include $7.7bn in stock sales for Tencent-backed Pinduoduo Inc. and JD.com in the last two years, helping these companies build their war chests to take on their larger competitor in the hotly contested e-commerce arena.

The two banks have reaped at least $70m from advising Pinduoduo and JD.com on stock deals. The figure doesn’t include the undisclosed fees of a $1bn bond sale by Pinduoduo in September and the $4.5bn secondary listing by JD.com in June.

Representatives at Goldman and Bank of America declined to comment. Ant and Alibaba declined to comment in separate e-mailed statements.

IPO bankers

Ant is aggressively competing with Tencent’s WeChat Pay to maintain its dominance of China’s $29-trillion mobile payments space. It has been pitching digital payment services to the local arms of KFC Holding and Marriott International as it transforms its Alipay app into an online mall for everything from loans and travel services to food delivery.

Alipay’s share of mobile payments has increased for three consecutive quarters, rising to 55.1% in the fourth quarter, according to consultant iResearch. Tencent has 38.9% of the market.

Ant hired Citigroup, JPMorgan Chase & Co, Morgan Stanley and CICC to lead its Hong Kong IPO. The sale is expected to raise more than $10bn and could value the firm at $200bn, people familiar have said. Ant hasn’t selected banks for the Shanghai portion, though global firms will probably be left out because lead underwriters for any IPO on the tech-focused Star board must buy shares in the deal.

Banks leading the Ant IPO in Hong Kong have fewer conflicts. While Morgan Stanley earned $6.4m for a junior role in Pinduoduo’s stock sale last year — about half of Goldman’s haul — Citigroup and JPMorgan weren’t involved in those deals.


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