(Yicai Global) Aug. 28 -- The number of initial public offerings on China's stock markets has increased since the second half of last year despite investment banks charging fat fees for them.

Investment banks easily raked in USD1.5 million (CNY10 million) for an IPO in the first half and sometimes grabbed more than CNY100 million to float a firm, and their charges often accounted for 60 percent to 90 percent of the total listing cost. Small groups may have spent their net profits from a half year (or a whole year) to go public.

IPO costs generally include fees for underwriting and sponsorship, auditing and capital verification, legal work and information disclosure. The cut investment banks get is frequently more than half.

Hangzhou Huning Elevator Parts Co. [SHE:300669], which listed on June 29, spent CNY30.65 million on its IPO. The company paid the investment bank CNY18 million, or nearly 60 percent of the issuance cost. Yealink Network Technology Corp. [SHE: 300628] spent CNY65.92 million to float on March 17. The investment bank collected CNY59.86 million, over 90 percent of issuance cost.

The highest rate investment banks charged for underwriting and sponsorship was 23.25 percent in the first half of this year. The lowest was 1.7 percent, and the average was 8.73 percent.

Many factors including issuance size and price as well as fundamentals affect the underwriting fee, as do the profit distribution mechanism and reputation of the investment bank, an investment bank manager at one of Beijing's mid-sized brokerage firms told Yicai Global.

"The bigger the scale of a company to be listed and the greater the amount of the proceeds is, the lower the fee rate will be," the investment bank manager said. In smaller deals, the investment bank will generally set a minimum charge to cover the cost and request to share proceeds with the company, he said. "For instance, we implement an underwriting and sponsorship fee rate that is at least 6 percent and set a standard to earn no less than CNY20 million from each IPO," he said.

"An investment bank may run under the company system or the team system," he said. "Under the company system, the income and bonus of the investment bank team is distributed by the company, the volume of the IPO does not greatly affect the team's income level, and thus the underwriting and sponsorship fee rate is relatively stable. Under the team system, the investment bank is responsible for its own earnings and losses -- perhaps the investment bank distributes its remaining earnings after submitting a part of earnings to the company, and the fee rate will be volatile. Under such circumstance, the team may sometimes need to bid to get the IPO and a high fee rate might make it lose the project."