WH Group has appointed 28 bookrunners for its planned US$5bn–$6bn IPO, dealing another blow to efforts to instil more accountability in the listing process.
WH, formerly Shuanghui International, is taking title inflation to a new level. “Bookrunner” in this sense will most likely not mean someone in charge of the book, but someone who dials into a conference call and agrees with everyone else. In a group of this size, it is a lead manager or co-lead manager role in all but name.
This is reminiscent of the kind of sports days becoming popular at some schools, in which every participant wins a prize for turning up, regardless of whether they actually took top spot in their event. (This does not happen in British schools, where budding athletes are given early experience of crushing disappointment to prepare them in case they never make it into one of the national teams.)
Title inflation is nothing new. Malaysian IPOs have introduced the concept of “issue manager” to give extra status to certain banks, while Bank of America Merrill Lynch boasts the newly-coined role of “co-global co-ordinator”, or co-glo-co, for the ongoing US$1.8bn IPO of Seibu Holdings in Japan. There are two joint global co-ordinators who rank above it and four joint bookrunners below it, making it unclear what that role actually entails.
More worrying is the sheer size of the WH Group syndicate. With the introduction of tough new regulations, market watchers had hoped for more discipline in the Hong Kong market, and a 28-strong syndicate from an apparently well-run, private sector champion is a big setback. Regulators are pushing for greater accountability, and banks certainly need a more sustainable fee structure.
WH Group’s decision, though, shows that top Chinese issuers still wield a considerable amount of power over their arrangers, and that banks will still do anything to be associated with a blue-chip deal. That trend may have been exacerbated by the dearth of jumbo listings in Hong Kong this year and the fact that taking on an IPO for a pig farmer will create few conflicts with other Asian listing candidates.
Issuers tend to think that increasing the number of banks on an IPO gives greater assurance that the deal will be completed, and might help ferret out additional pockets of demand, but hiring a bigger syndicate reduces an issuer’s chances of receiving worthwhile advice. None of the bookrunners are likely to disagree with the others or raise objections, because they will not want to risk being ejected from the deal if they are in the minority. WH Group’s seven sponsors – already a large number – will be steering things, and the unlucky 13 banks below JGC level will simply be earning a slim fee for printing research and saying ‘yes’ when it comes to their turn on the phone.
Compare the syndicate to the last few big equity deals from the stable of Hong Kong’s richest man and savviest investor, Li Ka-shing. In January, HK Electric Investments completed a HK$24bn (US$3.1bn) business trust IPO, with only two joint global co-ordinators and bookrunners. There were only three advisers to Hutchison Whampoa on the proposed US$5bn–$6bn IPO of AS Watson, although it might have expanded the bookrunner syndicate had it decided to proceed this year. When Hutchison span off its ports business into a trust in 2011, the US$5.45bn IPO of Hutchison Port Holdings Trust was executed with only three bookrunners.
Superman Li has worked out that keeping syndicates small creates accountability, and has shown that he will reward good performance with repeat mandates. Even if WH Group is a roaring success, will 28 banks really win follow-up work with the issuer? Or will they be left, like runners-up in the egg and spoon race, missing out on the real rewards?
The real question, though, is whether hiring more bookrunners equals better distribution and aftermarket performance for the issuer. The two Asian issuers with the largest IPO syndicates before WH Group were China Galaxy Securities and Huishang Bank. Both priced their offerings a shade above the bottom of guidance.
In contrast, Chinese auction house Poly Culture Group had one of the best responses from investors so far this year for its HK$2.6bn Hong Kong IPO managed by just one bookrunner, Citic/CLSA.
While not a perfect comparison – it is a rare offering from a red-hot sector, rather than yet another Chinese financial stock – it shows that a bigger syndicate is not necessarily better.
