CXMT's $8.6 Billion IPO to Generate Over $41 Million for Banks

Post by : Bianca Haleem

ChangXin Memory Technologies (CXMT), China's leading memory chipmaker, is poised to launch its substantial $8.6 billion initial public offering (IPO), with projections indicating that six investment banks could garner fees exceeding $41 million, as indicated in company disclosures.

This forthcoming deal is a significant boost for China's investment banking sector, which has experienced a notable decline in IPO-related earnings over the last five years.

Investment Banks Set to Gain Substantial Fees

According to the company filings, China Securities and CICC will act as the lead underwriters for the IPO.

Other banks also participating in this deal include:

China Merchants Securities
Guotai Haitong Securities
Guoyuan Securities
Huatai United Securities, a division of Huatai Securities

CXMT anticipates underwriting and associated fees totaling 280.6 million yuan, which is approximately $41 million and constitutes about 0.48% of its total IPO proceeds.

Should the IPO incorporate an overallotment option, bringing in up to $9.8 billion, total fees could rise to around 296 million yuan as per the disclosures.

Positive Trends in the IPO Market

This planned offering signals a gradual recovery in China's domestic IPO arena.

Regulatory bodies have eased listing requirements for firms in the fields of artificial intelligence (AI), semiconductors, and robotics, enabling a greater number of tech companies to access public funding as part of China's tech advancement initiatives.

Based on LSEG data, the total fees from mainland Chinese IPOs this year are projected to reach around $684.62 million, approaching last year's $984.75 million.

However, the market still lags behind the 2022 peak of $4.16 billion, driven by significant listings including China Mobile and CNOOC, which contributed to record underwriting revenues.

Potential Record for CXMT's IPO

CXMT launched its IPO subscription on Thursday.

As China's foremost producer of dynamic random-access memory (DRAM) chips, used broadly in smartphones, computers, servers, and other gadgets, this IPO stands to become:

The largest in Asia for this year.
The most substantial semiconductor IPO in China's A-share market.

This would surpass the 2020 semiconductor IPO by Semiconductor Manufacturing International Corp (SMIC) on the same market.

Negotiation Leverage Reflected in Fee Structure

Notably, the fee rate planned for CXMT is significantly lower than industry averages, indicating their strong negotiating stance.

LSEG's findings reveal that the average fee for A-share IPOs in China this year stands at 4.52%, contrasting with CXMT's 0.48% fee.

Nonetheless, the substantial size of the offering allows participating banks to generate considerable income even at these reduced rates.

Experts Note Robust Returns Despite Lower Fees

Shen Meng, director at boutique firm Chanson & Co in Beijing, highlighted the dual commercial and strategic significance of this IPO.

He pointed out that fierce competition among investment banks for such a prominent deal has driven fees down. However, given the large fundraising potential, banks still stand to realize meaningful returns despite the lower fee percentages.

No Comments from Involved Parties

CICC has declined to provide comments regarding the IPO.

CXMT, along with China Securities, China Merchants Securities, Guotai Haitong Securities, Guoyuan Securities, and Huatai United Securities, did not respond to inquiries for comment.

As noted in LSEG data, China Securities, CICC, Guotai Haitong, and Huatai Securities shine as top earners from China A-share IPOs from 2022 through 2026 to date, while China Merchants Securities holds the ninth position.