JPMorgan Sees Surge in Fees From U.S.-Listed Chinese Companies

JPMorgan Chase & Co. (JPM) expects investment-banking fees from U.S.-listed Chinese companies to surge this year as they step up acquisitions, helping compensate for a drop in initial public offerings.

Revenue from mergers advisory, acquisition financing and convertible bond underwriting for such companies may triple from last year, said Brian Gu, the bank’s head of corporate finance for China. U.S-listed Chinese companies’ contribution to JPMorgan's investment banking revenue from China will probably more than double from where it stood over the last two years, Gu said.

Takeovers involving Chinese companies traded in the U.S. have surged this year as a drop in valuations encouraged owners to take them private. Meanwhile, Chinese IPOs in the U.S. tumbled as a slowing economy and corporate accounting scandals eroded investor confidence.

“There are lots of bells and whistles added to these deals, including loan financing and convertible bonds,” Gu said of the acquisitions. “Clients are no longer interested to just hear IPO or plain vanilla deal pitches because there is just no appetite for these. It’s become a different game.”

Takeovers of U.S.-listed Chinese companies reached a record $6.8 billion this year, more than double the amount for all of 2011, according to data compiled by Bloomberg. The biggest deal was a $3.5 billion bid for Focus Media Holding Ltd. (FMCN) in August by private-equity firms including Carlyle Group LP and Hong Kong- based FountainVest Partners Co. Ltd., in what would be China’s largest leveraged buyout.

Convertible Bonds

JPMorgan is advising the special committee appointed by Focus Media to evaluate the offer. Citigroup Inc. (C), Credit Suisse Group AG and Morgan Stanley advised the bidders, data compiled by Bloomberg show.

The 178 Chinese companies traded on U.S. exchanges have fallen by a median of 20 percent in the past year, compared with a gain of 2.4 percent by Chinese companies traded in Hong Kong, according to data compiled by Bloomberg.

Slumping stock prices have discouraged Chinese companies listed in the U.S. from raising money by selling new shares, said Gu. Instead, some are considering selling convertible bonds to finance stock buybacks and boost earnings per share, he said.

JPMorgan last month helped Ctrip.com International Ltd. (CTRP), the largest online travel agency in China, arrange a $180 million convertible bond sale. At the same time, the New York- based bank sold Ctrip a derivative designed to minimize dilution when the bonds are converted into shares.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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