Investment banking fees generated by financial institutions in China stood at $5.6 billion during the first half of this year, a year-on-year drop of 33% compared to that of last year’s, according to data from the London Stock Exchange Group (LSEG).
CITIC Securities, Bank of China (BOC) and China International Capital Corporation (CICC) were among some of the best local performers in the first half, earning $452 million, $348 million and $226 million, respectively, from investment banking businesses. These, at the same time, represented a 6%, 36% and 37% of decrease, respectively, compared to the same period last year. The next best in the top performers’ list were China Securities Co. (CSC), Industrial and Commercial Bank of China (ICBC) and China Industrial Bank.
“The relatively subdued capital markets in China have dampened IPO activity and led to smaller deal sizes in follow-on offerings, contributing to a decline in investment banking fees,” Elaine Tan, senior manager, deals intelligence, at LSEG, told FinanceAsia.
Alongside these market conditions, heightened regulatory scrutiny and ongoing geopolitical tensions have also posed persistent headwinds, curtailed M&A activity and deterred cross-border M&A deals.
Fees earned from the equity capital market (ECM) witnessed the sharpest drop by 75% to $645.8 million, as China’s onshore stock market continues to suffer from slow activity. Total proceeds of $26.6 billion were raised on China’s onshore ECM during the first half, 66.2% lower than 2023’s first half and the lowest since 2009.
The number of initial public offerings (IPOs) and secondary offerings dropped, while convertible bond issuances witnessed an uptick, mainly driven by big name issuers including Alibaba and JD.com. Convertible bond issuers in total raised $12 billion, a 25.1% increase from last year.
Mergers and acquisitions' (M&A) transactions that involved mainland Chinese parties recorded $121.1 billion, the lowest in 10 years. Both inbound and outbound cross-border transactions remain flat, on top of a continuing dropping trend in onshore deals to a total volume of $77.5 billion, in contrast to the peak level of almost $250 billion in 2015.
“Heightened regulatory scrutiny and ongoing geopolitical tensions have also posed persistent headwinds, curtailed M&A activity and deterred cross-border M&A deals. The economic slowdown has prompted companies to adopt a more cautious approach toward expansion through M&A,” Tan explained.
M&A advisory fees of completed deals, as a result, dropped by 26% to $264.5 million in the first half of this year.
China's debt capital market (DCM) is showing the only sign of “resilience” across China’s investment banking segments, according to Tan. DCM underwriting fees totalled $4.3 billion in the first half, a milder 7% drop compared to last year.
Issuers raised total proceeds of some $1.5 trillion on China’s DCM, 1.8% down from last year. Sovereign and financial institutions’ issuances together constituted almost 80% of total issuances.
Tan said that the DCM segment could potentially sustain growth momentum for investment banks in China, especially as the government continues to implement policies and stimulus measures aimed to boost demand and growth.
Global economic conditions, interest rates environment and investor demand will continue to influence DCM and other capital markets performance in the second half, she added.
