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CSFB's China Unicom Incident

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In late August 2001, Credit Suisse First Boston (CSFB), a major international investment
bank, was removed from the foreign underwriting team that would handle a pending share
offering for China Unicom Group Ltd., the second-largest telecommunications company in
the Chinese Mainland. Only two months earlier, CSFB had been designated to deal with the
US portion of that offering. However, after the bank hosted overseas investment "roadshows"
attended by senior government officials from Taiwan (including the Finance Minister), it was
officially dropped from the list of China Unicom underwriters.

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The incident provoked criticism from governments in the United States and Taiwan. It also
resulted in widespread comment and activity in investment banking circles. China, after all,
was a major source of investment banking deals in 2001 and was likely to become a much
more important market for investment banking services in the future. Several other big
investment banks dropped Taiwan-related activities right away, and many observers
wondered what the incident would mean for the investment banking industry in China and
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elsewhere.

Investment Banks and Roadshows

Investment banks were financial institutions that served as underwriters or agents for
corporations or governments issuing securities. Investment banks were distinguished from
commercial banks or retail banks in that they did not take deposits or make loans. Most
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investment banks provided a range of services, including underwriting, broker/dealer


operations, maintaining markets for previously issued securities, advisory services for
companies, and research and advisory services for customers.

Underwriting was a major function of investment banks. Underwriters were responsible for
raising investment capital from investors on behalf of corporations and municipalities that
were issuing securities. They were the intermediaries that bought the securities from the
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issuers first and then sold them in the investors' market. Investment bankers prepared initial
public offerings (IPOs) and bond issues for companies that wanted to raise capital. They
served their clients through the whole process, from planning the deals up to distribution of
issues in the market. In large transactions there was often more than one tier of underwriters.
The lead underwriter(s) would buy all the issues from the client and then sell them to the
second-tier underwriters, who would in turn sell the issues in different markets. Apart from
bonds and equities, investment banks could also arrange syndicated loans, swap transactions,
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Vincent Mak prepared this case under the supervision of Professor Michael J. Enright for class discussion. This
case is not intended to show effective or ineffective handling of decision or business processes.
This case is part of a project funded by a teaching development grant from the University Grants Committee
(UGC) of Hong Kong.
© 2002 by Centre for Asian Business Cases, The University of Hong Kong. No part of this publication may be
reproduced or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or
otherwise (including the Internet) - without the permission of The University of Hong Kong.
Ref. 01/129C 2 January, 2002

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01/129C CSFB's China Unicom Incident

and equity-linked issues such as convertible floating rate notes and equity-warrant bonds [see
Exhibit 1 for rankings of the world's leading investment banks, and Exhibit 2 for rankings of

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the leading investment banks in Asia]. Investment banks often were paid a fixed fee plus a

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commission that was typically a percentage of the value of a particular transaction. Good
credit ratings from recognised rating agencies such as Moody's and Standard & Poors would
help investment banks to borrow more money from creditors, enabling them to do bigger
transactions, and would also help in their bond business.

Key success factors for investment banks included their placing power (ability to sell new

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issues to investors), reputation, capital base, ability to make markets in issued securities, and
research support. It was important for investment banks to maintain good relationships with
customers in order to ensure that they would be considered when the customers needed to do
deals. In particular, investment banks sought good relations with customers that might need
to raise a lot of capital in the future -- such as major companies in the growing Chinese
Mainland market in 2001.

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An investment bank could also run "roadshows" for their customers. These were meetings,
conferences, or seminars arranged to promote investors' interests in the client companies or
governments and to enable closer discussions between the clients and individual investors.
Roadshows often involved representatives from the investment bank and the client travelling
to financial hubs worldwide to speak to investors directly. Investment deals could be made
during the roadshow. Before a client issued securities to raise capital, such as holding an
initial public offering (IPO) or a major bond issue, it would often arrange a roadshow with its
underwriter to test the waters and arouse interest in the market.
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China as a Market for Investment Banks

By 2000, the Chinese Mainland ranked eighth among Asia's markets as a centre for issuing
bonds, ninth for syndicated credits, and second for international equities [see Exhibit 3] --
though it should be noted that big Chinese groups often did deals through their Hong Kong-
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incorporated subsidiaries. As the economy of the Chinese Mainland took off and became
more open, more and more Chinese companies were listed in domestic and overseas stock
exchanges. This trend continued in 2001. By late 2001, the combined market value of the
Shanghai and Shenzhen stock exchanges was about US$625 billion (roughly half of the
country's annual gross domestic product), larger than that of the Stock Exchange of Hong
Kong and second in Asia to Tokyo's US$2.5 trillion. Taiwan's stock market was small by
comparison, amounting to around US$200 billion by August 2001 in market capitalisation.1
More than 1,100 companies were listed on the two Chinese Mainland domestic stock markets,
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and nearly 200 securities brokerages were in operation.2

The Shanghai and Shenzhen stock exchanges were set up in the early 1990s. At first, only
shares denominated in renminbi, and which could only be held by the public of the Chinese
Mainland, were traded. These were called A shares. Later, B shares, which were
denominated in renminbi but payable in foreign currency, and which could only be held by
foreign investors, were listed in Shanghai and Shenzhen. Also in the early 1990s, companies
from the Chinese Mainland began to list in overseas markets. "H shares" were Mainland
company shares that were floated and listed on the Stock Exchange of Hong Kong. "Red
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chips" were companies that were incorporated and listed in Hong Kong but were controlled
by Mainland Chinese companies. Altogether, nearly 125 Chinese Mainland companies were

1
Taiwan Stock Exchange Corporation, URL: http://www.tse.com.tw/docs/statistics/marke_statisticsF.htm, November 2001.
2
Beijing Homeway Info.Media Ltd., "Report: China to allow foreign firms to list on stock mart", ChinaWeb, 10 September,
2001; Karby Leggett, "The Bull in the China Shop", Asian Wall Street Journal, 10 September, 2001.

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01/129C CSFB's China Unicom Incident

listed overseas by 2001, mostly in Hong Kong, with some listed in New York or other
markets.3

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In 2001, the Chinese authorities were taking initiatives to merge the different sectors of the
country's domestic stock markets and to attract more foreign investors. In February, it
allowed domestic investors to trade in the B-share market. In September, it was reported that
Chinese officials planned to open the A-share market to foreign investors, and that certain
types of foreign firms would be allowed to list in the Chinese Mainland by 2002.4 But
Premier Zhu Rongji stopped such talk in November 2001, saying that there was still much to

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be done to improve the management of the Mainland's stock markets before the country could
accept more foreign involvement in domestic trading.5

A global economic slowdown meant that stock markets as well as investment banking
activities worldwide were weak in 2001. According to CSFB, in non-Japan Asia, only six
new equity issues had been completed in the first quarter of 2001, raising US$2.5 billion; the
corresponding figures in the first quarter of 2000 were 39 issues and US$10.9 billion.6 But

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analysts seemed to remain optimistic about China, mainly because it was the biggest market
in the world by population. Moreover, the country's economy kept growing rapidly amidst a
global economic slowdown, and became the source of most major corporate finance deals in
Asia by September 2001.7 With the opportunities offered by the pending entry of the Chinese
Mainland into the World Trade Organisation and the privatisation of more and more state-
owned companies, investors could foresee numerous potential deals originating in the
Chinese Mainland.
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Rivalry between the Chinese Mainland and Taiwan

After a civil war that ended in 1949, the Kuomintang leadership left the Chinese Mainland
and set up in Taiwan as the "Republic of China". However, the government of the "People's
Republic of China" (PRC) had always considered Taiwan as part of China and never
recognised Taiwan as anything more than a breakaway province. Much of the rest of the
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world as well as various international organisations recognised the government of the People's
Republic of China as the official government of "one China". For years, Beijing sought to
isolate Taiwan through diplomatic pressure, and vigorously tried to head off any attempts to
give the island's government international standing. Beijing also long suspected that the
Democratic Progressive Party of Chen Shui-bian, who was elected as Taiwan's president in
2000, wanted to lead Taiwan to independence. The relationship between the two
governments was described as a rivalry. On the other hand, Taiwanese investors were given
preferential treatment by the Mainland government. By 2001, Taiwan was even enjoying an
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annual surplus of about US$20 billion in trade across the Taiwan Strait, according to a
Taiwanese official.8
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3
Kathy Wilhelm, "When it pays to list at home", Far Eastern Economic Review, 24 May, 2001.
4
Beijing Homeway Info.Media Ltd., ChinaWeb, 10 September, 2001.
5
Ming Pao, 7 November, 2001.
6
"Asian Equity New Issue -- Markets in Review", Credit Suisse First Boston, 30 March, 2001.
7
Karen Richardson, "Mutual Fund Watch: China's Slap at CSFB Illustrates Risk for Funds", Asian Wall Street Journal, 6
September, 2001.
8
Central News Agency, Taipei, "Taiwan: Beijing's action against US banks said regrettable; Xinhua reporter rebuked", BBC
Monitoring Asia Pacific - Political, 7 September, 2001.

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01/129C CSFB's China Unicom Incident

Credit Suisse First Boston

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History and Major Milestones9

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The history of CSFB can be traced back to an underwriting subsidiary of First National Bank
of Boston in the nineteenth century. In the early 1930s, First National Bank of Boston's
securities underwriting affiliate was spun off, and, together with a similarly spun-off
subsidiary from Chase National Bank, formed First Boston Corp. The company also began
expansion to Europe. After ups and downs in the 1930s and 1940s, the company lost ground

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against competition in the 1960s, partly because of its conservative strategy. A rising bond
market in the 1970s helped it rebound, and in 1972 the firm focused on increasing foreign
business. It was restructured in 1976 to become First Boston Inc. In 1978, First Boston and
Swiss banking group Credit Suisse (CS) created Credit Suisse-First Boston, which was 40 per
cent owned by First Boston. CS held its stake in this company through a 44 per cent-owned
holding company called Credit Suisse First Boston (CSFB). First Boston was hard hit by the
stock market crash in 1987 and lost heavily from loans related to mergers and acquisitions. In

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1988, First Boston merged with CSFB; the new company retained the name of Credit Suisse
First Boston. In 1990 CS injected US$300 million into CSFB and shifted US$470 million
worth of bad loans from CSFB's books in return for control of CSFB; thus CS became the
first foreign owner of a major Wall Street investment bank. CSFB paid back the debt to its
parent in 1992.

CSFB expanded throughout the 1990s. From 1992 to 1994, it invested in Russian oil and gas
stocks and opened an office in Moscow. In 1997, the company expanded its business in
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South Korea and India; the next year, its 75 per cent-owned securities subsidiary Credit
Suisse First Boston (India) Securities was listed on the Bombay exchange. CSFB also bought
part of the British group Barclays' equity and investment banking businesses in Asia in 1998
for US$170 million -- a price that some analysts considered a bargain. The bank faced some
difficulties too. In 1998, it had agreed to pay Orange County, California US$52.5 million to
settle a lawsuit relating to the county's bankruptcy in 1994. Also in 1998, the Russian
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economy collapsed, with drastic devaluation of the ruble. In 1999, the Japanese authority
revoked the securities licence of a CSFB affiliate there for allegedly obstructing an
investigation.

In 2000, CSFB acquired the investment bank Donaldson, Lufkin & Jenrette (DLJ) for
US$11.5 billion and changed its name to Credit Suisse First Boston (USA). CSFB's plans to
cut 10 per cent of the combined staff led to a number of key DLJ executives defecting to
competitors. In May 2001, CSFB recruited former British prime minister John Major as a
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senior advisor. Meanwhile, CSFBdirect, the company's on-line brokerage unit, laid off
altogether 24 per cent of its employees in March and June, as demand for on-line trading
subsided. In July, CEO Allen Wheat stepped down and was replaced by former Morgan
Stanley Dean Witter President John Mack. Things turned worse in the third quarter of 2001
as worldwide recession loomed, and CSFB's revenue was down 20 per cent from the second
quarter. CS announced in October that it expected a loss of about US$188 million in the third
quarter of 2001. In the same month, CSFB announced that it would carry out an initiative to
cut costs by US$1 billion, partly by eliminating approximately 2,000 jobs, or seven per cent
of its global workforce.
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Major Businesses by 2001


By 2001, CSFB, based in New York, was a wholly owned subsidiary of the Zurich-based CS
Group, a global financial services conglomerate. CSFB advised institutional, corporate,
government, and individual clients on mergers and acquisitions, IPOs, and privatisations of

9
Information for this section comes largely from Hoover's Company Profile Database, plus media archives.

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01/129C CSFB's China Unicom Incident

government companies. Its businesses included securities underwriting, sales and trading,
investment banking, private equity, financial advisory services, investment research, venture

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capital, correspondent brokerage services, and retail on-line brokerage services. It was a

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major component of CS, accounting for more than half of CS's revenue (about US$23.25
billion) and some 66 per cent of its total assets (about US$617 billion) in 2000. Most of its
revenue came from North America and Europe [see Exhibits 4A, 4B and 4C].10 As of July
2001, its credit ratings included: Moody's -- A1; Standard & Poors -- AA; Fitch IBCA Ltd. --
AA.

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The company consisted of four major divisions: Investment Banking, Equity, Fixed Income,
and Private Equity. Apart from these, it also had an e-commerce unit called CSFBNext and a
Financial Services Group that included CSFBdirect, Private Client Services Group, and
Pershing, a brokerage execution, clearance, and financial technology services provider.
CSFB operated in over 87 locations across more than 39 countries on six continents, and had
some 28,000 staff worldwide.11

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CSFB received numerous awards from financial publications [see Exhibits 5A, 5B, and 6 for
some of the major awards CSFB obtained from 1999 to 2001], including awards specifically
related to its Asian operations. In 2000, CSFB was among the top 10 leading investment
banks in the world in almost all major business fields. It also had a strong presence in Asia,
compared to other investment banks.

Business in the Chinese Regions


With the stature, reputation, and expertise of a major international investment bank, CSFB
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had helped organisations in the Chinese Mainland, Hong Kong Special Administrative
Region, and Taiwan raise capital in the aftermath of the 1998 Asian financial crisis. Exhibit
5B shows details of award-winning deals for the People's Republic of China, Hong Kong's
Pacific Century CyberWorks, Taiwan's United Microelectronic Corporation, and others.

However, with only 13 per cent of CSFB's 2000 revenue coming from Asia and Latin
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America [see Exhibit 4C], the Chinese regions, as part of the "non-Japan Asia" regional unit
of CSFB's investment banking business, did not represent a major revenue source for CSFB in
2000. Although CSFB ranked high in the Asian investment banking market and had been
awarded for individual, Chinese-related transactions, it had never been named best firm in the
Chinese Mainland, Hong Kong, or Taiwan in any investment-banking category by mid-2001.
But it also followed the worldwide trend in actively seeking opportunities in the Chinese
Mainland in 2001. It claimed that its CNOOC deal [see Exhibit 6] represented the largest
and most successful new equity offering in non-Japan Asia in the first quarter of 2001.12
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The China Unicom Incident

The Taiwan Roadshow


Taiwan faced a flagging economy and weak investor sentiment in early 2001, prompting its
government to promote actively the island's investment opportunities to foreign capital
sources. In March 2001, CSFB invited two senior Taiwanese officials, including the Minister
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of Finance Yen Ching-chang, to speak at an investment conference in Hong Kong. The event
attracted Beijing's attention.13 Later, Taiwanese finance officials organised a roadshow in

10
Annual Review 2000, Credit Suisse Group.
11
CSFB Website, URL: http://www.csfb.com/company_info/index.shtml.
12
Credit Suisse First Boston, 30 March, 2001.
13
Karby Leggett and Phillip Day, "China Bars CSFB From Future Business Deals -- Bank Says Decision Comes After It Hosted
Officials From Archrival Taiwan", Wall Street Journal, 31 August, 2001.

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01/129C CSFB's China Unicom Incident

Europe to help attract foreign investment. CSFB arranged the trip, which lasted 10 days from
late June to early July, with Taiwan's Finance Ministry. The ministry delegation, headed by

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Yen, the Minister of Finance, went to Milan, London, Frankfurt, Amsterdam, Paris, and

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Zurich, holding "Taiwan Investment Forums" at each stop. Accompanying Yen were several
government officials and dozens of executives from the banking and insurance industry,
major listed Taiwanese companies, and domestic financial institutions. They included Benny
Hu, former president of China Development Industrial Bank, and Ju Fu-chen, president of the
Taiwan Stock Exchange.14 In addition to the forums, Yen himself held 18 private meetings
with 28 European fund managers during the trip; Hu held more than 100. Altogether the

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delegation met with over 200 foreign investment institutions in Europe. Yen said afterwards
that the ministry estimated that they had raised US$15 billion to US$20 billion in investment
in the Taiwan stock market.15

Soon after the European tour, the Taiwan Finance Ministry announced plans for two further
trips in middle and late September 2001 to boost foreign investment to Taiwan. Sean Chen,
the Vice Finance Minister, would lead a delegation to Singapore, Hong Kong, and Tokyo, and

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Yen would lead a group to Boston, New York, and San Francisco. They also planned to have
CSFB organise those two trips.

The Incident
In June 2001, China Unicom Ltd., the Chinese Mainland's second-largest mobile phone
operator and dominant paging company, announced plans to market new share issues to fund
the acquisition of 18 provincial networks from China United Telecommunications (China
Unicom Group), its parent.16 China Unicom also said that it had appointed Morgan Stanley
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and China International Capital Corp. as leading managers and global book-runners for the
issue, which it hoped to complete before end of 2001. In addition, it planned to appoint three
more banks as regional book-runners: JP Morgan for Asia, CSFB for the United States, and
Deutsche Bank for Europe. Shi Cuiming, China Unicom's executive director, said that JP
Morgan and CSFB were to have mandates as financial advisors for the deal as well.17
Analysts estimated that the deal would be worth between US$7 billion and US$8 billion,18
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and later it was revealed that CSFB's secondary underwriting role would be responsible for an
expected US$1.8 billion worth of share issues.19

On 31 August, 2001, the Wall Street Journal reported that executives at CSFB said that the
company had been officially removed from the underwriting team of the China Unicom deal
by the PRC government,20 because of the Taiwanese Finance Ministry's European roadshow.21
The story went that the PRC government was angry with CSFB for organising a roadshow in
which senior Taiwanese government officials, in particular Yen, participated. According to a
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CSFB executive, the government of the Chinese Mainland "was also angered that some of the
literature distributed at the conference [in Hong Kong in March 2001] apparently didn't refer
to Taiwan as part of the mainland".22

14
"Finance minister says Europe trip a success", Taipei Times, 6 July, 2001; Kyodo News Service, Tokyo, "Taiwan: Finance
minister says Beijing obstructing overseas 'roadshows'", BBC Monitoring Asia Pacific - Political, 4 September, 2001.
15
"Finance minister says Europe trip a success", Taipei Times, 6 July, 2001.
16
"China Unicom appoints financial advisors for loans related to network purchase", AFX-Asia, 21 June, 2001; Eric Ng, "China
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Unicom - China's No. 2 mobile-phone operator - has appointed at least five internatioal investment banks to market its planned
new shares issue to fund the acquisition of 18 provincial mobile networks from its mainland parent", South China Morning Post,
22 June, 2001.
17
Hui Yuk-min, "Unicom dumps CSFB from offer", South China Morning Post, 6 September, 2001.
18
Hui Yuk-min, South China Morning Post, 6 September, 2001.
19
James Kynge, "Beijing lifts ban on future CSFB deals: Bank was penalised over Taiwan", Financial Times, 19 October, 2001.
20
China Unicom Ltd. was registered and listed in Hong Kong, but the Mainland Chinese government held a controlling stake in
it.
21
Karby Leggett and Phillip Day, Wall Street Journal, 31 August, 2001.
22
Karby Leggett and Phillip Day, Wall Street Journal, 31 August, 2001.

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01/129C CSFB's China Unicom Incident

China Unicom, the China Securities Regulatory Commission, and the State Council
Information Office (which handled foreign media inquiries) did not respond to questions from

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the Journal. Nor did anyone from CSFB respond formally.23 On 6 September, China Unicom

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finally confirmed that it had dropped CSFB from the share deal, but the China Unicom
spokesperson who announced the move did not refer to any political pressure:24

There are too many bidders, and the competition was too keen … Regarding
whether the decision has anything to do with that [political reason], we have
no information about that.

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The spokesperson also remarked that China Unicom once had CSFB on the "preliminary short
list" for the deal, but that was only preliminary and not confirmed. Regarding Shi's earlier
statement that CSFB would have an additional mandate as financial advisor for that deal, the
spokesperson said no mandate had been signed.

Some days later, Xiang made more explicit remarks concerning the CSFB incident.25 He said

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the PRC government did not object to "unofficial commercial activities" by international
financial institutions in Taiwan, but if the companies

conduct official activities … then we oppose them … As long as it does not


involve political issues, then the [PRC] government won't interfere.

Soon after the ban on CSFB was publicised, Taiwan's Yen said:26
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I need to express my regret for the Chinese attitude towards the CSFB for
their hosting the country roadshow of Taiwan in Europe.

We understand that [they] have been discouraged strongly by the Chinese


government.
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He added that Taiwan had cancelled the impending Japanese roadshow, originally planned to
be organised by CSFB, because of his tight schedule and had "nothing to do with the attitude
of the Chinese government". He said that he planned to hold further roadshows or lectures in
the United States, Singapore, and Hong Kong without outside help, and had confidence in
doing so without outside help.

Three days later, Lin Chong-pin, vice chairman of Taiwan's Cabinet-level Mainland Affairs
Council, which was responsible for policy towards the Chinese Mainland, expressed regret
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about the China Unicom incident. He said that the action of the PRC would only hinder the
creation of a mutually beneficial situation for both sides, adding that the Chinese authorities
had stepped up their efforts to "control Taiwan", including a diplomatic embargo, political
suppression, economic "hollowing out", sabre-rattling, and military threats. 27 The Taiwanese
government's reaction was best summarised by Yen:28

China combines everything with the so-called one-China issue.


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23
Karby Leggett and Phillip Day, Wall Street Journal, 31 August, 2001.
24
Hui Yuk-min, South China Morning Post, 6 September, 2001.
25
Tyler Marshall, Henry Chu, Times Staff Writers, "China Balks at Taiwan, Bank Deal", Los Angeles Times, 12 September,
2001.
26
Kyodo News Service, Tokyo, BBC Monitoring Asia Pacific - Political, 4 September, 2001.
27
Central News Agency, Taipei, BBC Monitoring Asia Pacific - Political, 7 September, 2001.
28
Tom Hilditch, "The threat - Did China really slap down CSFB or just demand some respect?", Asiaweek, 14 September, 2001.

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01/129C CSFB's China Unicom Incident

Repercussions

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After its removal from the Unicom deal, CSFB scrapped plans to organise the September
roadshows for Taiwan. A senior CSFB executive said the company feared that it would be

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dropped from at least two other potential underwriting deals in the Chinese Mainland.29 As it
turned out, it was dropped from one further deal, a US$1 billion offering by China
Aluminium.30 In early September, it was reported that at least five other major investment
banks -- Goldman Sachs, Merrill Lynch, JP Morgan Chase, ABN Amro, and Daiwa Securities
-- had dropped plans to organise roadshows promoting Taiwanese investments.31 US officials
and politicians voiced their dismay, some calling it "economic thuggery",32 but could not

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make any immediate changes to the situation. In early September, the country's Treasury
Secretary Paul O'Neill said he would raise the issue during his pending meeting with PRC
officials in Beijing,33 but the topic seemed to have been avoided when a talk between O'Neill
and Xiang Huaicheng, the Mainland Chinese Finance Minister, took place later.34

In mid-October, CSFB's Mack arrived in Beijing, reportedly to persuade the Chinese


government not to impose further bans on CSFB.35 There he held talks with Jin Liqun, the

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PRC's Vice Minister of Finance. Later in the same month, Jin told the Financial Times that
CSFB would not be barred from future deals in the Chinese Mainland provided it did not
repeat actions that Beijing believed promoted the Taiwanese government.36 In addition, he
told the Financial Times that Beijing had made "stern representations" to CSFB and had told
the bank that its role in organising the European roadshow and Hong Kong conference to
which Yen was invited were "not conducive to the reunification" of both sides. Jin said:37
"We also hope that CSFB will continue to contribute to the peaceful reunification of the
motherland."
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Implications

As the incident unfolded, many began to wonder about the implications for investment banks,
for Taiwan, and for the Chinese Mainland. This was particularly true as China and Taiwan
prepared to enter the World Trade Organisation in November 2001.
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One unidentified "leading Asian economist" said:38

Investment banks are about making money and they should accept that China
is a client like any other … US companies often drop a bank into the penalty
box for a deal or two if they work with a competitor or displease them
somehow. China expects the same respect.
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James Campion, a regional head of mutual funds at Schroder Investment Management, said:39

29
Karby Leggett and Phillip Day, Wall Street Journal, 31 August, 2001.
30
James Kynge, Financial Times, 19 October, 2001.
31
"Financial Folly", South China Morning Post, 8 September, 2001; Tom Hilditch, Asiaweek, 14 September, 2001.
32
Tyler Marshall, Henry Chu, Times Staff Writers, Los Angeles Times, 12 September, 2001.
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33
William Kazer, "US Treasury Secretary Paul O'Neill plans to raise China's punitive action against investment bank Credit
Suisse First Boston (CSFB) when he meets officials in Beijing this week", South China Morning Post, 10 September, 2001.
34
Tyler Marshall, Henry Chu, Times Staff Writers, Los Angeles Times, 12 September, 2001.
35
Matt Pottinger and Karby Leggett, "CSFB Chief Tries Smoothing Ruffled Feathers in Beijing - John Mack Wants Firm Taken
Off Blacklist", Asian Wall Street Journal, 15 October, 2001. But CSFB's Hong Kong spokesperson declined to comment on
Mack's trip.
36
James Kynge, Financial Times, 19 October, 2001.
37
James Kynge, Financial Times, 19 October, 2001.
38
Tom Hilditch, Asiaweek, 14 September, 2001.
39
Karen Richardson, Asian Wall Street Journal, 6 September, 2001.

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01/129C CSFB's China Unicom Incident

At some point, power of the opportunity of China would mean [the


government] would have some leverage to sway the way international fund

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companies do or don't do business in Taiwan.

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Mark Mobius, Head of Templeton Emerging Market Fund, which had about US$100 million
in investments in Taiwan and US$680 million in the Chinese Mainland, said:40

Some people will begin to think about this and perhaps even make strategic
decisions regarding where they should be … Some might choose to put their

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eggs in the Taiwan basket while others will put them in China.

An Asian manager for a major Western investment bank claimed:41

If you're an investment bank looking for the billion-dollar deal, you go to


China. That's where the big fees are … However, we have always made more
money in Taiwan than we have in China.

yo
The Asian Wall Street Journal reported that the so-called "Chinese walls" that supposedly
separated the different operations in financial services groups for fiduciary, ethical, and legal
reasons, were not honoured in the CSFB incident. In fact, the report said that, even before the
incident,42

even the chattiest fund managers and directors of prominent international


asset-management firms have had to refrain from making comments
op
involving China … unless approved by their investment banking
counterparts.

But more troublesome was that, as one analyst said, the CSFB incident was:43

… not a problem of bullying, but unpredictability … The CSFB situation is


tC

worrisome because the bank was careful to keep China happy, yet this hit
them out of the blue. Banks might think twice about getting involved in China.

A Hong Kong economist disagreed:44

China drew the line … You can host Taiwan CEOs but you can't host Cabinet
ministers. You can't present Taiwan as a country.
No

There also was a chance of backlash against the PRC government and Mainland firms. The
Asian Wall Street Journal quoted an unidentified "Asian director of a major fund house with a
global investment-banking parent" as saying:45

I like to believe the world will react very strongly to this … The fact that
China is strong-arming US businesses over what countries to do business
with is, in many ways, pretty nasty.

A commentator writing in the South China Morning Post opined that the Chinese leadership's
Do

action might do it no good:46

40
Karen Richardson, Asian Wall Street Journal, 6 September, 2001.
41
Karen Richardson, Asian Wall Street Journal, 6 September, 2001.
42
Karen Richardson, Asian Wall Street Journal, 6 September, 2001.
43
Tom Hilditch, Asiaweek, 14 September, 2001.
44
Tom Hilditch, Asiaweek, 14 September, 2001.
45
Karen Richardson, Asian Wall Street Journal, 6 September, 2001.

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01/129C CSFB's China Unicom Incident

This mixing of finance and politics might hurt Taiwan, at least temporarily,

t
but it certainly does China's own reputation no good. Beijing is highly

os
sensitive to matters affecting Taiwanese sovereignty, but that wasn't relevant
to these strictly commercial events. By injecting that issue into matters which
should rise or fall on their economic merits, Beijing officials have reminded
the world that dealing with them can still be subject to arbitrary political
obstacles.

rP
Curiously, this dispute runs counter to a wide range of other cross-strait
ventures. In fact, the Taiwanese official who seemed so objectionable [Yen]
was in Suzhou [a city in the Chinese Mainland near Shanghai] last night to
meet his Beijing counterpart, Finance Minister Xiang Huaicheng. Their
agenda presumably included proposals to establish direct trade and
transport links between island and mainland.

yo
It is in China's own interest to have Taiwan prosper, with an economy closely
connected to that of the mainland. Scaring away skittish bankers is easy to
do, but that raises questions about China's own constancy and does no one
any good.
op
tC
No
Do

46
South China Morning Post, 8 September, 2001.

10

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For the exclusive use of M. Ruiz
01/129C CSFB's China Unicom Incident

EXHIBIT 1
LEADING INVESTMENT BANKS WORLDWIDE IN 2000

t
1. Top bookrunners by volume, all international bonds (all currencies):

os
No. of Total volume Market
Rank Managing bank or group
issues (US$ million) share (%)
1 Merrill Lynch 524 159,402.45 10.59
2 Morgan Stanley Dean Witter 576 149,388.72 9.93

rP
3 Salomon Smith Barney 461 149,374.73 9.93
4 Deutsche Bank 492 118,578.44 7.88
5 UBS Warburg 449 109,711.90 7.29
6 CSFB 408 105,793.42 7.03
7 JP Morgan 307 104,828.75 6.97
8 Goldman Sachs 265 95,975.73 6.38
9 Lehman Brothers 234 77,504.29 5.15
10 ABN AMRO 273 55,198.64 3.67

yo
2. Top arrangers of syndicated credits by volume:

Rank
1 JP Morgan
Group
Total volume
(US$ million)
305,202.59
2 Bank of America 299,576.03
op
3 Citibank/Salomon Smith Barney 225,739.05
4 Barclays 115,782.74
5 Deutsche Bank 87,994.16
6 BancOne 81,617.35
7 ABN AMRO 76,381.92
8 Mizuho FG 70,731.70
tC

9 CSFB 51,708.89
10 HSBC 46,433.24

3. Top bookrunners by amount, all international equities:

No. of Amount (US$


Rank Name
tranches million)
No

1 Goldman Sachs 166 31,859.05


2 Merrill Lynch 129 26,970.69
3 Morgan Stanley Dean Witter 139 25,392.17
4 CSFB 168 14,917.26
5 Deutsche Bank 75 14,410.65
6 Salomon Smith Barney 128 12,296.99
7 UBS Warburg 94 10,092.61
8 ABN AMRO Rothschild 54 8,621.20
9 CICC 12 6,412.65
Do

10 Nomura International 53 5,745.58

(cont'd next page)

11

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01/129C CSFB's China Unicom Incident

EXHIBIT 1 (CONT'D)
LEADING INVESTMENT BANKS WORLDWIDE IN 2000

t
4. Top managing banks or groups by volume, all international equity-linked issuance:*

os
No. of Total volume Market
Rank Managing bank or group
issues (US$ million) share (%)
1 Merrill Lynch 14 11,265.23 22.90
2 UBS Warburg 19 7,262.73 14.80

rP
3 Goldman Sachs 16 6,821.65 13.90
4 Deutsche Bank 10 4,908.73 10.00
5 Salomon Smith Barney 11 4,608.85 9.40
6 BNP Paribas 5 2,945.55 6.00
7 Societe Generale 9 1,863.42 3.80
8 Lehman Brothers 5 1,738.45 3.50
9 CSFB 6 1,490.92 3.00
10 Morgan Stanley Dean Witter 4 1,443.97 2.90

linked deals.
yo
* Including convertibles, exchangeables, bonds with warrants, and other qualifying equity-

5. Top managing banks or groups by volume, all international convertibles:

No. of Total volume Market


op
Rank Managing bank or group
issues (US$ million) share (%)
1 Merrill Lynch 14 11,265.22 23.96
2 Goldman Sachs 16 6,821.65 14.51
3 UBS Warburg 18 5,528.27 11.76
4 Deutsche Bank 10 4,908.73 10.44
5 Salomon Smith Barney 11 4,608.85 9.80
tC

6 BNP Paribas 5 2,945.55 6.27


7 Societe Generale 9 1,863.43 3.96
8 Lehman Brothers 5 1,738.45 3.70
9 Morgan Stanley Dean Witter 4 1,443.96 3.07
10 ABN AMRO 5 1,323.95 2.82
No

Source: Thomson Financial Securities Data as cited in International Financing Review, Vol. 1365,
6 January, 2001.
Do

12

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01/129C CSFB's China Unicom Incident

EXHIBIT 2
LEADING INVESTMENT BANKS IN ASIA-PACIFIC IN 2000

t
1. Top arrangers of syndicated credits by volume, Asia-Pacific (excluding Australasia):

os
No. of Total volume
Rank Group
issues (US$ million)
1 Mizuho FG 142 45,528.32
2 Sumitomo 63 15,288.77

rP
3 Sanwa 50 12,616.06
4 BoT-Mitsubishi 41 12,432.68
5 Citibank/SSB 99 11,818.35
6 ABN AMRO 64 6,158.49
7 HSBC 37 5,238.24
8 Bank of America 50 4,804.79
9 JP Morgan 28 4,536.07
10 Int CBC 12 4,531.72

yo
2. Top bookrunners of equity deals by amount, Asia-Pacific (excluding Japan):

Rank
1 Goldman Sachs
Name
No. of
tranches
19
Amount (US$
million)
6,436.19
2 CICC 12 6,412.68
op
3 Morgan Stanley Dean Witter 16 6,005.85
4 Merrill Lynch 19 4,073.68
5 BNP Paribas 29 3,116.44
6 Salomon Smith Barney 15 1,963.14
7 JP Morgan Chase 14 1,080.87
8 CSFB 14 887.92
tC

9 UBS Warburg 15 868.68


10 ING Barings 8 564.54

3. Top managing banks or groups by volume, all international Asian convertibles (excluding
Japan):

No. of Total volume Market


No

Rank Managing bank or group


issues (US$ million) share (%)
1 Merrill Lynch 3 3,387.50 37.48
2 UBS Warburg 5 1,841.65 20.38
3 Goldman Sachs 2 1,173.00 12.98
4 Deutsche Bank 1 700.90 7.75
5 BNP Paribas 1 600.00 6.64
6 CSFB 1 352.90 3.90
7 CICC 1 230.00 2.54
8 Morgan Stanley Dean Witter 1 207.01 2.29
Do

9 Macquarie 1 790.75 2.11


10 JP Morgan 1 150.00 1.66

Source: Thomson Financial Securities Data as cited in International Financing Review, Vol. 1365,
6 January, 2001.

13

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01/129C CSFB's China Unicom Incident

EXHIBIT 3
INVESTMENT BANKING BUSINESS IN 2000 OF SELECTED ASIAN REGIONS

t
1. All international bonds, all issues:

os
No. of Amount (US$
Region
issues million)
Japan 106 26,413.14
South Korea 25 6,167.16

rP
Hong Kong 5 5,750.00
Singapore 8 2,294.10
Taiwan 9 1,698.00
The Philippines 3 1,657.73
Malaysia 3 1,351.74
China 2 976.53
Indonesia 1 403.00

yo
2. Signed syndicated credits:

Japan
Region

Hong Kong
No. of
tranches
207
85
Volume (US$
million)
94,551.99
30,423.64
Taiwan 95 19,679.81
op
South Korea 68 6,645.04
Malaysia 40 6,161.93
Singapore 39 4,757.35
Thailand 30 4,412.44
The Philippines 45 4,288.99
China 19 3,605.38
tC

3. International equities:

No. of Volume (US$


Region
tranches million)
Hong Kong 71 13,869.68
China 31 11,572.03
No

Japan 101 10,932.37


Taiwan 12 4,136.75
Singapore 18 2,929.12
South Korea 5 1,058.51
India 13 961.89
Malaysia 3 249.60
Indonesia 2 103.28
Do

Note: "China" refers to the Chinese Mainland.


Source: Thomson Financial Securities Data as cited in International Financing Review, Vol. 1365,
6 January, 2001.

14

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01/129C CSFB's China Unicom Incident

EXHIBIT 4A
CSFB'S INCOME STATEMENTS FOR 2000 AND 1999

t
(In US$ millions)

os
2000 1999
Revenue
Fixed Income Division 2,919 4,464
Equity 5,076 3,212
Investment Banking Division 3,681 2,318
Financial Services Group 268 -

rP
Other 250 (241)
Total Revenue 12,194 9,753
Expenses
Personnel expense 7,192 5,368
Execution, clearing and brokerage 283 293
Other operating expenses 1,893 1,529
Total Expenses 9,368 7,190

yo
Gross Profit 2,826 2,563
Net Income47 1,412 1,262

Source: Annual Review 2000, Credit Suisse First Boston.

EXHIBIT 4B
CSFB'S 2000 REVENUE BREAKDOWN BY REGION
op
Percentage of total
Region
revenue in 2000
North America 51%
Europe 36%
Asia/Latin America 13%
Total 100%
tC

Source: Annual Review 2000, Credit Suisse First Boston.


No
Do

47
Before extraordinary/exceptional items and minority interest.

15

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01/129C CSFB's China Unicom Incident

EXHIBIT 4C
CSFB'S BALANCE SHEET FOR 2000 AND 1999

t
(In US$ millions)

os
2000 1999
Assets
Cash 809 727
Money market papers 16,129 14,327
Due from banks 150,095 105,782
Due from other business units 1,903 1,551

rP
Due from customers 55,810 33,877
Mortgages 11,970 4,601
Securities and precious metals trading portfolios 117,643 76,874
Financial investments 6,487 3,976
Non-consolidated participations 711 640
Fixed assets 2,337 1,574
Intangible assets 10,637 706
Accrued income and prepaid expenses 5,583 3,644

yo
Other assets
Total Assets
Liabilities and Shareholder's Equity
Liabilities in respect of money paper
Due to banks
Due to other business units
Due to customers, in savings and investment deposits
29,624
409,738

18,692
226,988
6,011
30
26,945
275,224

18,848
139,434
5,968
69
op
Due to customers, other deposits 62,664 43,526
Bonds and mortgage-backed bonds 27,804 21,577
Accrued expenses and deferred income 13,805 6,515
Other liabilities 33,621 30,013
Valuation adjustments 2,037 1,479
Total Liabilities 391,652 267,429
tC

Total Shareholder's Equity 18,086 7,795


Total Liabilities and Shareholder's Equity 409,738 275,224

Source: Annual Review 2000, Credit Suisse First Boston.


No
Do

16

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t
For the exclusive use of M. Ruiz

s
01/129C CSFB's China Unicom Incident

EXHIBIT 5A

Po
SELECTED MAJOR HOUSE AWARDS WON BY CSFB AND DLJ

r
Year Company Award Publication
M&A House of the Year The Banker

o
Securitisation House of the Year The Banker
2001 Credit Suisse First Boston
The World's Best Asset-Backed House Euromoney
The World's Most Improved Debt House Euromoney

y
Best Debt House Central European
Best Equity House Central European
M&A House of the Year Insto

p
Best Project Finance House Euromoney
Best Technology House FinanceAsia

o
Best Lead Manager of Emerging Market Bonds Euroweek
2000 Credit Suisse First Boston Equity Derivatives House of the Year International Financing Review
Swiss Franc Bond House of the Year International Financing Review

C
US Equity-Linked House of the Year International Financing Review
Best Underwriter of IPOs Euromoney

t
Americas Project Finance Loan House of the Year International Financing Review
Best Underwriter of Asset-Backed Securities Euromoney

o
Best Lead Manager of Retail Targeted Bonds Euroweek
European High Yield Bond House of the Year International Financing Review
2000 Donaldson, Lufkin & Jenrette
US High Yield Bond House of the Year International Financing Review

N
Best Bank of the Last 25 Years International Financing Review
Best Bond House of the Last 25 Years International Financing Review
1999 Credit Suisse First Boston
Investment Bank of the Decade Central European
Equity House of the Decade Central European

o
Source: Annual Review 2000, Credit Suisse First Boston, and CSFB Website, URL: http://www.csfb.com/company_info/html/company_awards.shtml.

D 17

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For the exclusive use of M. Ruiz
01/129C CSFB's China Unicom Incident

EXHIBIT 5B
SELECTED MAJOR AWARDS WON BY CSFB'S ASIAN OPERATIONS

t
os
Year Award Publication
Indonesia - Best M&A House Euromoney
Korea - Best Debt House Euromoney
Korea - Best M&A House Euromoney
2001
Singapore - Best M&A House Euromoney
Best Investment Bank in Indonesia FinanceAsia

rP
Best Investment Bank in Korea FinanceAsia
Best M&A/Restructuring House - Malaysia The Asset
Best M&A/Restructuring House - Singapore The Asset
2000
Singapore - Best Foreign M&A House Euromoney
Best Foreign Investment Bank in Indonesia FinanceAsia

yo
Source: Annual Review 2000, Credit Suisse First Boston, and CSFB Website, URL:
http://www.csfb.com/company_info/html/company_awards.shtml.
op
tC
No
Do

18

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copyright. Permissions@hbsp.harvard.edu or 617.783.7860
t
For the exclusive use of M. Ruiz

s
01/129C CSFB's China Unicom Incident

EXHIBIT 6

Po
SELECTED MAJOR CSFB DEALS IN THE CHINESE MAINLAND, HONG KONG, AND TAIWAN

r
Date Client(s) Region Nature of the Deal Role of CSFB Award (Publication)
Chinese Joint Global Coordinator
02/2001 CNOOC Ltd.48 US$1.43 billion IPO --

o
Mainland and Joint Bookrunner
Private placement of
Chinese
02/2001 China Netcom Corp. US$325 million stake Advisor --
Mainland

y
to an investor group
Guangdong
US$2.5 billion

p
Investment Ltd./GH Chinese
12/2000 acquisition of GH Advisor --
Water Supply Mainland
Water Supply
(Holdings) Ltd.

o
United US$1.29 billion Deal of the Year, Taiwan (Asiamoney)
09/2000 Microelectronic Taiwan American Depositary Joint Lead Arranger Techonology-Related Equity Issue of the
Corporation Share offering Year (Asiamoney)

C
Asia M&A Deal of the Year (Euromoney)
Best M&A Deal (FinanceAsia)

t
Best M&A Issue (The Asset)
Pacific Century Highly Commended - M&A (Takeover)
US$35.9 billion

o
08/2000 CyberWorks/Cable Hong Kong Financial Advisor (Corporate Finance)
merger
&Wireless HKT Ltd. M&A Deal of the Year/Buyout of the Year
(Asiamoney)

N
Mergers & Acquisitions (Institutional
Investor)

o
(cont'd next page)

48

D
CNOOC was the Chinese Mainland's third-largest oil company.

19

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t
For the exclusive use of M. Ruiz

s
01/129C CSFB's China Unicom Incident

EXHIBIT 6 (CONT'D)

Po
SELECTED MAJOR CSFB DEALS IN THE CHINESE MAINLAND, HONG KONG, AND TAIWAN

Date

06/2000
Client(s)
Siliconware Precision
Industries Co. Ltd.
Taiwan
Region

r
Nature of the Deal

o
US$255 million
American Depositary
Receipts offering
Role of CSFB
Sole Global Coordinator
and Joint Bookrunner
Award (publication)

--

y
SUNDAY Joint Global Coordinator
03/2000 Hong Kong US$338 million IPO --
Communications Ltd. and Joint Bookrunner

p
People's Republic of Chinese US$1 billion Global Asia-Pacific Bond Deal of the Year
12/1998 Joint Lead Manager
China Mainland Bond Issue (International Financing Review)

o
Source: Annual Review 2000, Credit Suisse First Boston, and CSFB Website, URL: http://www.csfb.com/company_info/html/company_awards.shtml.

C
o t
o N
D 20

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