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 prudence.ho@wsj.com and Yvonne Lee at
yvonne.lee@wsj.com
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