HONG KONG--The Chinese pork producer that made headlines last year with the acquisition of U.S.-based Smithfield Foods hired a record number of lead bankers to handle its US$5 billion Hong Kong initial public offering. indicating the battle among underwriters to get into what could be Asia's biggest IPO in coming months.
The pending second-quarter IPO by WH Group, formerly called Shuanghui International Holdings, drew seven sponsors among its 17 underwriters, among the most for an IPO in Hong Kong. WH Group is expected to list in April, if, as people familiar with the matter say they expect, the Chinese company gets listing approval next month.
The $3.1 billion IPO by tycoon Li Ka-shing's Hong Kong electricity company last month had just two sponsors. There were two other multibillion dollar IPOs that had more than six sponsors in Hong Kong: the $3 billion listing in December by China Everbright Bank had six sponsors, and the world's biggest IPO, the US$22.1 billion Hong Kong-Shanghai listing of Agricultural Bank of China Ltd. in 2010, which had seven sponsors, Dealogic data shows.
Among the sponsors--or the bankers that are in charge of the prospectus and the whole IPO--that have been picked for the IPO were Morgan Stanley, which advised Shuanghui on its US$4.7 billion purchase of Smithfiled, and BOC International, the Chinese bank that funded most of the deal. The other sponsors are Chinese investment bank Citic Securities International, Singapore's DBS Bank, Wall Street firm Goldman Sachs Group Inc., Swiss bank UBS AG and Standard Chartered Securities (Hong Kong) Ltd. Shuanghui's purchase of Smithfield was the biggest Chinese takeover of a U.S. company.
The banks are piling into a high-profile IPO that could get them credit on league tables that rank investment banks by the value of deals on which they advise. These are a useful pitching tool to win business. But the increased number of sponsors, alongside the huge number of underwriters, will weigh on overall investment-banking fees bankers will make from WH Group's IPO.
Sponsors tend to get more in fees than other underwriters. In recent years, with the entry of Chinese investment banks into the city, Hong Kong's IPO market has seen an increased number of underwriters piling into IPOs, which tend to pay around 1.5%-3% of the deal's size in fees.
The record number of sponsors comes despite tough new rules from Hong Kong's Securities & Futures Commission, which took effect in October. A rule imposing criminal liability on underwriters that knowingly approved a false prospectus remains in limbo. But other rules, including tougher due-diligence steps for sponsors have made the IPO business for banks in Hong Kong harder. Now, sponsors need to complete certain due-diligence steps before attempting to take a company public. In past, a listing candidate could start an IPO process even before due diligence was complete.
Hong Kong, which was the world's top IPO destination from 2009 to 2011, fell to second last year after the New York Stock Exchange, but listings in the city remain an important source of revenue for investment banks in Asia. Other IPOs set to make the headlines this year, if they happen, are multibillion-dollar Hong Kong IPOs by Alibaba Group Holding Ltd., which could value the e-commerce giant at over US$70 billion or more, and tycoon Li Ka-shing's A.S. Watson & Co.
Another IPO set for a second-quarter listing, though still awaiting listing approval in Hong Kong, is China Grand Automotive Services Co., in which U.S.-based private-equity firm TPG Capital has a stake. The Shanghai-based car dealer has now raised its fundraising size to US$1 billion from US$800 million amid rising car sales in China, people with knowledge of the deal said Monday.
China Grand Auto's decision to raise its fundraising size isn't surprising since China's vehicle sales picked up again in 2013 with a 14% annual rise, the biggest increase in three years, according to official figures.
A more immediate IPO is of Chinese state-owned auction house Poly Culture Group. Corp, which expected to start gauging investor interest in a premarketing process Tuesday. The company is planning to raise between US$200 million and US$300 million from its IPO. Citic Securities International is handling the offering.
Beyond the sponsors, WH Group's other underwriters are Barclays PLC, Bank of America Merrill Lynch, China International Capital Corp., Deutsche Bank AG., J.P. Morgan & Chase, ICBC International, Dutch bank Rabobank Group, Credit Suisse Group AG., Nomura Holdings Inc. and Daiwa Securities.
Write to Prudence Ho at [email protected] and Yvonne Lee at [email protected]