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Agricultural Bank Said to Ask Goldman, Morgan Stanley for 36% IPO Fee Cut

Agricultural Bank of China Ltd. is negotiating a 36 percent cut in underwriter fees for its $10.5 billion initial stock sale in Hong Kong to reflect talks with corporate investors that the lender handled itself, said three people with knowledge of the matter.

The seven arrangers, led by Goldman Sachs Group Inc., Morgan Stanley and China International Capital Corp., may share about $70 million of the roughly $205 million of gross fees upfront, the people said, declining to be identified as they aren’t authorized to discuss commissions publicly.

Agricultural Bank asked for a $75 million fee cut, arguing that it mainly handled talks with corporate investors such as Standard Chartered Plc itself, the people said. Such buyers accounted for more than half the Hong Kong sale. The reduction may reflect intensifying competition among underwriters in China, which accounts for a growing share of global stock sales, said Sanford C Bernstein & Co. analyst Michael Werner.

“This is a place where you don’t want to make enemies,” Hong Kong-based Werner said. “The business here seems a bit more cut-throat. Some Chinese names are going to have more bargaining power.”

The Beijing-based bank also withheld about $48 million of fees to be distributed among advisers based on performance, said the people. At least $12 million of the fee pool will go to lawyers, financial advisers and so-called junior syndicate banks who worked on the deal, according to the people.

First-Day Gain

Shares of Agricultural Bank began trading in Hong Kong today, rising 2.2 percent to HK$3.27 at the 4 p.m. close. The stock debuted in Shanghai yesterday.

Chinese companies have raised $54.8 billion in IPOs this year, accounting for more than two-fifths of the global total, according to data compiled by Bloomberg.

Investment banks managing the IPO stand to earn more should Agricultural Bank exercise an option to expand the sale by up to 15 percent to cover excess demand. That would enable the lender to raise up to $22.1 billion, making it the largest IPO ever.

CICC, Goldman Sachs, and Morgan Stanley were joint global coordinators for the Hong Kong part of the $19.2 billion IPO and will get the largest share of base fees, the people said. Deutsche Bank AG, JPMorgan Chase & Co., Macquarie Group Ltd. and Agricultural Bank’s investment-banking unit also helped underwrite the offering.

Ding Yuan, a Beijing-based press official at Agricultural Bank, declined to comment, as did spokespeople for the underwriters.

Less Work

Agricultural Bank is paying 1.96 percent of gross proceeds in Hong Kong in fees, while the rate for the Shanghai portion of the sale is 1.16 percent, or 688.44 million yuan ($101.6 million), according to IPO documents. CICC, China Galaxy Securities Co., Citic Securities Co. and Guotai Junan Securities Co. managed the Shanghai offering.

The fees are lower than in rival Industrial & Commercial Bank of China’s $21.9 billion IPO in October 2006, which yielded a commission of 2.5 percent for the Hong Kong part.

Pan Gongsheng, who oversaw ICBC’s IPO before moving to Agricultural Bank in 2008 to help take the lender public, argued that fees for Agricultural Bank’s sale should be lower because investment banks spent less time preparing it, the people said.

The underwriters worked on Agricultural Bank’s IPO for about three months, the people said. ICBC’s advisers spent about eight months on the offering, according to a person who worked on that transaction.

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