Google's US$2.7 billion planned initial public offering (IPO) is unconventional in several respects, not least that it is essentially a Dutch auction in which the share price, rather than being fixed in advance will be determined by bidders.

Another unusual aspect of the process of selling off the world's best used Internet search engine is that the company has asked brokers to put up letters of credit (L/Cs) to guarantee that investors pay for Google shares. Some of the world's major investment brokers do not like this idea.

Nightmare on Wall Street

Wall Street investment banks handling Google's IPO perceive it to be something of a nightmare. Some of the brokerage firms hired to take the search engine public are apparently so frustrated by the company's unusual demands that they may, as Merrill Lynch did in June, drop out entirely.

Sources close to the company apparently told the Wall Street Journal that at least three of the 30 brokerage firms hired for the IPO are balking at Google's insistence that they put up L/Cs, some for about US$500 million, to cover any newly issued shares that are not paid for by investors.

No payment risk

Some of the world's largest investment houses are arguing that it is not their responsibility to cover the payment risks in the issue.

Investment banks refusing to grant the request include Citigroup, Goldman Sachs and J P Morgan Chase according to the Australian Financial Review, which suggests that these brokers might reconsider if Google increases their fees.

The IPO is expected to yield about $US90 million in earnings for Wall Street's investment houses, the majority of which will likely go to lead underwriters Credit Suisse First Boston and Morgan Stanley.

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