China investment banks making market inroads

In June 2011, Australian mining firm Resourcehouse attempted to raise up to US$3.6 billion through an initial share sale in Hong Kong. Despite weak demand from institutions, the firm pressed ahead with the offering. It cut its share price by a third, but it was to no avail. The company then pulled the float - its fourth attempt to list in the city.

That left egg on the face of Resourcehouse's sole listing sponsor, BOC International, the investment banking arm of state-controlled Bank of China.

The botched listing confirmed for many the persistent view of mainland investment banks: they could not be trusted to lead deals, they were not good at distribution, and they were prone to fundamental errors because of inexperience. In other words, for a big offshore transaction, it was best to hire a large Western bank.

Aside from the fact that three large foreign banks were also on the Resourcehouse float - HSBC, RBS and UBS - this thinking seemed odd.

Mainland banks have been gaining market share from international rivals since the global financial crisis, and the trend is continuing. Data from Thomson Reuters shows that before the crisis, mainland banks accounted for about 13 per cent of the offshore equity and debt deal volumes from mainland issuers. Post-crisis, their share is about 20 per cent.

The impact was most pronounced in debt, by far the biggest source of issuance from the mainland. Before the crisis, mainland banks led virtually no bonds for mainland firms. During the crisis, they suddenly led more than half of all the issuances, and their market share has since settled comfortably above 20 per cent.