NEW YORK (
foray into China's IPO market is part of the bank's wider push to grab a larger share of fees coming from the country's growing capital markets industry.
On Wednesday, JPMorgan signed a joint venture agreement with First Capital Securities to underwrite initial public offerings and fund raisings in the Chinese domestic market. The joint venture is still subject to regulatory approval.
JPMorgan and First Capital had signed a Memorandum of Understanding related to the deal in March of this year. JPMorgan will own 33% of the new entity -- the maximum allowed by Chinese regulators since the global financial crisis -- and First Capital will own the remaining majority stake, the companies say.
JPMorgan was the top ranked global equity and equity-related investment bank in terms of volume last year (according to company presentation slides that cite
). It is currently the second largest U.S. IPO bookrunner, behind
, according to
However, China is still a relatively untapped country for the bank in terms of capital raising. JPMorgan was already a bookrunner for IPOs and equity share sales out of Hong Kong, but the First Capital joint venture includes mainland China.
And the opportunity is lucrative.
Of the top 20 global IPOs so far this year, five of the debuts have been Chinese companies listed on the Shanghai or Shenzhen exchanges, according to
Additionally, as the U.S. IPO market stalled amidst one of the deepest financial crises since the Great Depression, China's IPO market remains fluid and growing. Last year, 185 Chinese companies went public with a total deal volume of $50.5 billion vs. just 49 IPOs in the U.S. valued at $16.7 billion, according to
. To date, 192 IPOs valued at $32 billion have already been done on Chinese exchanges this year, Dealogic says.
While JPMorgan has other partnerships in China such as asset management and a futures brokerage business, because it is late to the game in terms of capital raising -- and subsequently Chinese regulators have changed the rules -- it now has to wait five years to qualify for a brokerage license there, according to a March article by
Other large global institutions that have joint ventures with Chinese brokerage firms including Goldman Sachs and
set up their ventures before the rules were changed by Chinese regulators, the
investment in China International Capital Corp. is rumored to be up for sale with private equity behemoths, Kohlberg Kravis Roberts and TPG interested in the stake, in order for it to form another venture in which it has more control, according to
JPMorgan shares were down 7 cents to $37.71 in recent trades. Earlier in the session, it rose as high as $38.16. Year-to-date, the stock is down a little less than 10%, and it's fallen sharply since mid-April when it was briefly trading above $48 along with the rest of the financial sector.
--Written by Laurie Kulikowski in New York.