[ by Howard Haykin ]

Goldman Sachs, the investment bank, achieved what is considered a 'rare monopoly on the fees' tied to a record equity offering by Asia's biggest oil refiner, Sinopec (aka China Petroleum & Chemical).  The $3.1 billion share sale is the largest-ever equity deal to be handled by a single bank in Asia excluding Japan, according to Thomson Reuters. 

As the only investment bank in the deal, Goldman Sachs earned 100% of all underwriting and brokerage fees generated.   It's reported that Goldman earned a combined sum of $40 million - $31 in brokerage fees, $9 million for underwriting the deal. This feat is remarkable on several counts,

• First, it is very unusual - or rare, as Reuters noted, grab monopoly on the fees - any time, any place.
• Second, Goldman pulled this off at a time when investment banking deals are few and far between - with banks scrambling for any roles in the region's equity capital market.
• Third, it was common knowledge among investment bankers that Sinopec planned on raising funds for overseas acquisitions, but it was Goldman that managed to secure the transaction - lock, stock and barrel.
• Fourth, large deals usually involve several international and local banks, with fees spread across all participants.

In this competitive "dog-eat-dog" world, it would be hard to imagine ...   Goldman's rivals banks not offering to take below market fees to participate in the deal.  Knowing that Goldman earned a combined sum of around $40 million in fees from the offering - provides at least some "wiggle room" for negotiation, it might indicate that Sinopec wanted Goldman Sachs to do the deal, no matter what the cost.

Typically, fees are negotiated in private, so it is very difficult to determine the precise sum a bank earns from handling a financial transaction. Fees can run much higher or lower than what's expected.  The reported $40 million that Goldman was paid does not fall too far from industry norms, based on current fee standards.  Brokerage commissions between buyers and sellers typically range from 0.5 to 1% of the total, or roughly $30 million at the low end in this instance.

Concluding Note.   Given what we know, Goldman's handling on its own Sinopec's very large offering is a positive reflection upon Goldman and its team - that not only is flattering, but  is  ...   "A coup, and because it comes with league table credit, it gives [Goldman] a major boost because it's on a sole basis."  That last comment was made by Phillippe Espinasse, a former banker with Nomura and UBS in Hong Kong and the author of 'IPO: A Global Guide.'

For further details, go to:   [Reuters, 2/7/13].