JPMorgan Chase & Co lost their position as the lead underwriter in the IPO of Hong Kong-based Kingsoft Cloud Holdings Ltd after a note from one of the bank’s analysts reduced the Chinese tech company targeted share price by half, according to people who are familiar with the matter.
What is this all about?
As per Bloomberg News, JPMorgan Chase lost the lead role as arrangers of the Kingsoft listing, according to people who had information about the matter but did not wish to be identified as the matter is private. JPMorgan is still one of the underwriters but is now behind China International Capital Corp and UBS Group AG.
The development could lead to JPMorgan’s fees getting reduced after their demotion. This also questions the tricky situation banks face when their research department downgrades call on investment banking clients.
JPMorgan is among the many global banks looking to expand in China when the stock market is tumbling on concerns of slower economic growth government crackdowns on tech companies, and a strict policy for zero Covid.
There is no confirmation on the New York-based bank losing out on other deals in investment banking, especially after its analysts cut ratings on 28 technology companies, including the Kingsoft Cloud, and circulated a report widely last month calling g Shines etch companies as “un-investible” in the short term.
Global Banks, including JPMorgan, follow a policy where their research analysts operate independently of the investment banking division.
Kingsoft Cloud has around $1 billion and is listed in the U.S., according to People. The IPO offering size in Hong Kong is much smaller and amounts to $100 million.
A media representative of CICC and UBD and a spokesman at JP Morgan declined to comment.
Kingsoft Cloud said in a statement that they could not comment on anything related to the proposed listing, and they respect the independence of research analysts. Investment banking rankings and appointments will not be finalized until the listing is done, and each joint sponsor will have to take equal responsibility.
Analyst Alex Yao of JPMorgan had downgraded the ratings of Kingsoft Cloud to underweight and slashed its target price from $8 to $3.5. The stock plunged by 48 % on the same day. The price rebounded the next day after the company announced that it was looking at a Hong Kong listing.
JPMorgan has clarified to the management of Kingsoft Cloud that the downgrade was due to market conditions rather than to the company’s fundamentals. According to the People, the Kingsoft decision is not yet final.
