Mainland players favour Wall Street partners Joint ventures between global investment banks and local players in the mainland market are gaining traction in the A-share initial public offering market as they win mandates on some of the largest deals this year. UBS Securities underwrote Western Mining's US$814 million share sale which was priced at the top end of its indicative range on Thursday. The Qinghai-based miner sold 460 million shares at 13.48 yuan each in a deal that attracted 200 times the shares available. Western Mining originally had hired the Swiss bank for a Hong Kong offering but was forced to sell shares in the domestic market by the China Securities Regulatory Commission, the market regulator. It was the first deal UBS, the largest bank in Europe by assets, ran in the domestic market. UBS will also be joining Citic Securities and China International Capital Corp to run the estimated US$6 billion A-share offering by PetroChina, the mainland's largest oil company. The choice of UBS surprised many because Goldman ran PetroChina's stock offering in Hong Kong seven years ago and has featured in all of the three follow-on share sales since then. UBS is also working on an A-share offering for Beijing Capital International Airport and acting as a financial adviser on China Mobile's A-share offering. Mainland firms are looking to Wall Street for bookrunners because of the different approach that they take compared with domestic underwriters. 'It's about better execution, better research especially; we are a lot more responsive and aggressive in terms of marketing the company's story,' said Joseph Chee, head of China equity capital markets at UBS. Goldman Sachs Gao Hua got off the starting block faster than UBS in the mainland market. Along with China Galaxy Securities and Citic Securities, Goldman's joint venture ran the February share sale of Ping An Insurance, raising US$5.1 billion in the second largest domestic initial public offering. That marked the first time a Wall Street firm had helped arrange an A-share deal. It was also priced at the top end of the indicative range because of strong demand. Ping An, the mainland's second-largest insurer, and China Life Insurance are the only two listed insurance companies in the mainland. Underwriters of mainland deals earn 1 per cent to 2 per cent in fees. Based on that, UBS earned at least US$8 million from the Western Mining deal. Goldman split a pot of at least US$50 million with the other two bookrunners and possibly Ping An's brokerage arm which advised its parent on the sale as well. The largest A-share deal to date came from Industrial and Commercial Bank of China last year when it raised about US$6 billion. It was arranged by CICC, Citic, Guotai Junan Securities and Shenyin Wanguo Securities. Gao Hua also acted as a financial adviser to the US$3.3 billion mainland offering from Bank of Communications in May. Goldman is running the coming launch of Bank of Ningbo which is selling as many as 450 million shares and may raise as much as US$500 million. Goldman is the sole bookrunner. Bank of Nanjing could sell as many as 700 shares in a deal arranged by Citic Securities about the same time. Both banks last week won CSRC approval to sell shares. Goldman, the world's largest brokerage, and UBS will act as joint bookrunners for this year's estimated US$800 million A-share offering from China Merchants Securities. No domestic underwriters are involved. 'Our approach is no different from any other place. We adopt a similar approach more or less globally and some people may like that and some people may not,' said a Gao Hua banker who asked not to be identified. Both banks carry mainlanders with connections. Henry Cai, UBS chairman of investment banking China, was the company secretary of Shanghai Petrochemical, the second H-share listing in the 1990s. He went on to become the public face of an association made up of H-share firms where he developed contacts with securities regulators and officials in what became the National Development and Reform Commission. In Goldman's joint venture is Fang Fenglei, a leading mainland investment banker. He used to work at CICC. Goldman was fourth in the mainland equity capital market league table in the first half of this year with 13 per cent of the market, Bloomberg data shows. UBS had no deals. Rival Wall Street banks such as JP Morgan and Merrill Lynch are finding themselves slipping farther behind their licensed competitors while sealing a mainland brokerage deal becomes increasingly difficult. That is despite regulators' comments that more licences are on the way. 'Brokerages are at a serious disadvantage now that the securities industry is back on track,' said one banker whose company has no mainland licence. 'UBS and Goldman got in the door at the bottom of the market when the securities industry was in trouble but now brokerages are looking for much higher prices to sell and nationalism is a stronger force.' Domestic banks still dominate the market. At the top of the league table was CICC with 23 per cent of the market, followed by Citic Securities at 17.6 per cent and China Galaxy Securities with 17.2 per cent, according to Bloomberg data. CICC is 33 per cent owned by Morgan Stanley but after a falling out several years ago, the two are more competitors than partners for investment banking business. CICC and Bank of China International were the only other brokerages with dual licences to feature in the first-half league table. Domestic firms see focus as their best asset. 'We are totally dedicated to [the mainland] and Hong Kong,' said Daniel Ng, BOCI head of corporate finance. 'Our resources are focused on that while global banks are concentrating on certain sectors or areas and will never be able to cover China as extensively and as in-depth.' BOCI arranged the US$2 billion A-share offering from Industrial Bank in January. The deal was more than 100 times subscribed. Mainland companies raised US$125 billion from equity capital market offerings, according to Bloomberg data. They are taking advantage of a soaring market to expand while Beijing is encouraging overseas-listed companies to return. Caijing magazine in May reported that the State Council had given the green light to H shares China Construction Bank, China Telecom and China Shenhua Energy to list at home. They are to be followed by red chips such as CNOOC, Lenovo Group, Citic Pacific, China Netcom Group and China Merchants International (Holdings). Eventually, foreign companies will also be allowed to issue shares on the mainland, the magazine said. Red-chip companies are formed by transferring Chinese assets to overseas vehicles, usually incorporated in Hong Kong or tax havens such as the Cayman Islands. They differ from H-share firms which are incorporated in the mainland and listed in Hong Kong. H-share stockholders are subject to a lock-up period during which they cannot sell their shares. Market watchers have been expecting Beijing to allow major red chips to issue A shares on mainland markets, as part of its efforts to increase the supply of stocks from bigger and high-quality firms to meet rising demand from local investors. Regulators in Beijing have also encouraged mainland companies to issue shares on domestic bourses rather than in Hong Kong in the hope of bringing valuations down to more realistic levels with more supply. The Shenzhen index trades at 60 times last year's corporate earnings and the Shanghai index trades at 40 times compared with the Hang Seng Index which trades at 17 times. The mainland stock market is the most expensive in Asia. The total value of mainland initial public offerings this year is expected to reach 400 billion yuan, double the volume last year, according to PricewaterhouseCoopers. About 75 per cent of that volume would come from mainland companies listed elsewhere.