J P Morgan loses lead role in Kingsoft Cloud's HK offering

J P Morgan Chase was removed as the most senior underwriter for Kingsoft Cloud Holdings' Hong Kong stock offering after one of the bank's analysts cut the share-price target for the Chinese technology company by half, people familiar with the matter said.

The New York-based bank lost the so-called lead-left role in arranging Kingsoft Cloud's listing, the people said, asking not to be identified discussing private information. J P Morgan is still a sponsor of the offering, but is now ranked behind UBS Group and China International Capital Corp, the people said.

The demotion could cut fees for J P Morgan and underscores the tricky path banks must sometimes navigate when their research departments issue downbeat calls on investment-banking clients.

J P Morgan is among a slew of global banks seeking to expand in China at a time when the nation's stock market is tumbling on worries about slowing economic growth, strict Covid Zero policies and a government crackdown on tech companies.

There's no indication that J P Morgan has lost any other investment-banking roles after analysts at the firm cut ratings on 28 tech companies including Kingsoft Cloud in widely circulated research last month, calling the China internet sector "uninvestable" in the near term. Research analysts at global banks including J P Morgan are supposed to operate independently of the firms' investment bankers.

Kingsoft Cloud, which is already listed in the US, has a market capitalization of about US$1 billion (HK$7.8 billion). The size of the offering in Hong Kong may be relatively small, amounting to about US$100 million, one of the people said.

A spokesman at J P Morgan declined to comment, as did media representatives from UBS and CICC.

In a statement, Kingsoft Cloud said it couldn't comment on anything related to the proposed listing. "We highly respect research independence," it said. Investment bank appointments and rankings will not be finalized until prior to the listing, and each of the joint sponsors, if hired, take the same responsibility, the firm said.

J P Morgan analyst Alex Yao on March 14 downgraded Kingsoft Cloud to underweight, slashing its price target to US$3.50 from US$8. The stock plunged 48 percent that day. It rebounded the following day after Kingsoft Cloud announced it was exploring the Hong Kong listing.

J P Morgan bankers have explained to Kingsoft Cloud's management that the downgrade was triggered by general market conditions rather than fundamentals, the people said. Kingsoft Cloud's decision on the deal isn't final, the people said.