Goldman Sachs Group Inc may supplant Morgan Stanley as China's No 1 stock underwriter this year when Industrial & Commercial Bank of China (ICBC) raises as much as US$12 billion in the country's biggest initial public offering.

 

Goldman, the second-largest US securities firm by market value, is the frontrunner to win the assignment two months after it led a group that's investing about US$3.78 billion in Beijing-based ICBC, bankers familiar with the matter said. ICBC left New York-based Morgan Stanley out of the bidding for what may be the world's biggest IPO in seven years, bankers said.

 

At stake are about US$300 million of fees and bragging rights in the world's fastest-growing major economy. Morgan Stanley was China's top equity underwriter in 2005, data compiled by Bloomberg show. New York-based Goldman, which ranked fourth, also is managing an US$8 billion IPO for Bank of China, the country's second-biggest bank after ICBC.

 

"In the opening salvo for the war over China's financial-services market, Morgan Stanley is behind Goldman," said Phillip Phan, a finance professor at Rensselaer Polytechnic Institute in Troy, New York.

 

Goldman spokesman Edward Naylor in Hong Kong, Cheung Po-ling, a Hong Kong-based spokeswoman at Morgan Stanley, and ICBC spokesman Xie Taifeng declined to comment.

 

Executives from ICBC are scheduled to meet with investment bankers today to discuss the IPO. In addition to Goldman, ICBC asked Credit Suisse Group, Deutsche Bank AG, HSBC Holdings Plc, Merrill Lynch & Co, JPMorgan Chase & Co, Lehman Brothers Holdings Inc, and China International Capital Corp, partly owned by Morgan Stanley, to submit proposals, bankers said.

 

For Morgan Stanley, the ICBC IPO may be a blow because the third-biggest US securities firm by market value has provided financial advice to the company for more than three years.

 

Jonathan Zhu resigned in January as head of Morgan Stanley's China business to take a job at US buyout firm Bain Capital LLC. Morgan Stanley hired Citigroup Inc's Wei Christianson, 49, to replace Zhu. She is set to join Morgan Stanley in May.

 

Morgan Stanley was dropped from the bidding for ICBC last Friday, bankers familiar with the decision said. Officials at ICBC didn't want any tensions with archrival Goldman, which might have resulted in a delay, and decided to leave Morgan Stanley out of the process, the people said.

 

Goldman and Morgan Stanley co-managed Ping An Insurance (Group) Co's US$1.8 billion IPO in 2004. It's the only share sale in China that the two firms have worked on together, according to Bloomberg data.

 

Morgan Stanley and Goldman were among the first Wall Street firms to compete for the ICBC assignment. The firms were at first deleted from the list of prospective underwriters because of concern about potential conflicts, bankers said. Goldman was later reinstated and Morgan Stanley wasn't, they said.

 

Morgan Stanley last year arranged a US$9.2 billion share sale by China Construction Bank Corp, the biggest Chinese IPO so far. Shares of China Construction are up 53 percent since the October offering.

 

The ICBC sale probably will raise US$10 billion to US$12 billion, the bankers said. It may rank as the biggest IPO since Italy sold US$19 billion of stock in State-owned utility Enel SpA in November 1999.

 

OAO Rosneft, Russia's third-largest oil producer, last month said it may seek as much as US$20 billion in an IPO scheduled for later this year.

 

(China Daily March 3, 2006)