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China's IPO boom stretches lawyers to limit
Updated: 2004-05-03 10:22

Bankers get all the glory and lucrative fees but beneath the surface of China's initial public offering (IPO) boom are thousands of accountants and lawyers getting Chinese mainland companies ready for international stock markets.

"Most of the top quality law firms in Hong Kong are pretty stretched," said Roger Denny, head of law firm Clifford Chance's Asian corporate group.

In recent months, lawyers' hours have jumped 50 per cent, he added.

Preparing a mainland company for a Hong Kong, New York or London stock offering is a grueling task that can take two years of auditing and hundreds of attorney hours.

With mainland companies preparing to launch up to US$23 billion in overseas IPOs, many firms are ramping up operations to win a bigger piece of the action.

"We are investing US$150 million over the next five years in China," said Peter Bowie, China chief executive for Deloitte Touche Tohmatsu.

"Sixty to sixty-five per cent of that is going to be in people," he said, adding it will be the firm's largest ever single investment.

Deloitte has about 5,000 people on the mainland, Taiwan and Hong Kong. PricewaterhouseCoopers, a top rival, has about 6,000 in Hong Kong and the mainland, and KPMG and Ernst & Young also have thousands of people in the area.

Some bankers say that, given the pace of deals, a bottleneck could develop because of a lack of world-class accounting talent. Bowie said that could be a concern over the longer term, but the industry has so far kept up with demand.

"It's not unlike any boom anywhere," Bowie said. "You could liken it to a shortage of raw materials."

Right people, right job

"The real challenge is finding lawyers with the appropriate qualifications," said Clifford Chance's Denny.

It took about two to four years to train a graduate recruit, Denny said, adding the firm plans to bring lawyers in from Europe or the United States.

The perfect candidate is someone of Chinese descent who has worked and been educated in a Western country, executives say.

"You really need to be connected to the community you are in," said Bowie, whose firm prefers to hire candidates from China's mainland and train them.

Finding the right incentives with Chinese companies to attract the right people presents an added challenge.

"'It is not so much the accounting needs, but really getting the people on board," said Frank Lyn, a partner at PricewaterhouseCoopers and head of its China group.

An overseas listing means massive workloads for finance departments and other parts of the company, but in most cases there were no stock remuneration plans in place to give the workforce incentive, he said. "That is still something they need to work on."

Boom sustainability

After some lacklustre offerings, some market watchers are wondering whether China's IPO frenzy still has legs.

Shares of China's largest chip maker, Semiconductor Manufacturing International Corp, and mobile carrier China Resources Peoples Telephone both fell on their recent debuts.

Market watchers note that investors are becoming more selective, but are sanguine on prospects for big deals such as life insurer Ping An Insurance Co's US$2 billion IPO, which is expected to come to market next month.

Executives say that as long as there are no cracks in the Chinese economy or accounting scandals - which they are working hard to prevent - the first half of the year will be particularly busy.

"The analysts have been telling the companies that the first six months will be better than the next six months in 2004," said Lyn. "Everyone is bunching them (the IPOs) together."

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