Wednesday, 19 September 2018

Record syndicate for WH Group IPO

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  • Pork producer to feed IPO market


Twenty-eight banks to handle rare Hong Kong jumbo listing, with seven listed as sponsors

Chinese pork producer WH Group, which acquired US-based Smithfield Foods last year, has hired 28 banks to arrange its Hong Kong IPO of US$5bn–$6bn, setting a record for the number of bookrunners for an Asian flotation.

The line-up will smash the record that China Galaxy Securities set last May when it hired 21 banks to arrange its US$1.1bn IPO, and underlines the extent of competition for a role on Hong Kong’s biggest listing since AIA went public in 2010.

WH Group’s decision to give so many banks a senior role – with seven sponsors among the 15 global co-ordinators – raises questions about regulators’ ability to hold individual firms and bankers accountable for IPO disclosures, coming as it does after Hong Kong toughened sponsor-liability clauses last year.

In a 2012 consultation on related regulations, the Securities and Futures Commission suggested that each IPO should either have only one sponsor or that a limited number should be set for each flotation.

Ultimately, the proposal was dropped after encountering strong opposition from the industry. The industry’s view was that the number of sponsors and bookrunners selected was a “commercial decision”, said a banker on the transaction.

“In WH’s case, a lot of the banks working on the deal have a lending relationship with the issuer,” the banker added.

Bank of China and Morgan Stanley together provided US$7bn in loans to finance the acquisition of US pork company Smithfield. Both are listed as sponsors. WH Group was then known as Shuanghui.

Only big deal

Fearing that there will be few other big deals in Hong Kong this year, more banks are eager to join the transaction, despite the already overcrowded syndicate.

“WH Group is likely to be the biggest Hong Kong IPO this year, after we lost a few jumbo deals lately,” said a source at a bank trying to squeeze into the IPO. “Selling a pork producer is definitely better than selling another Chinese bank.”

Hong Kong has lost IPOs worth a combined US$30bn in the past two weeks.

“A lot of the banks working on the deal have a lending relationship with the issuer”

The most high-profile loss was Chinese e-commerce giant Alibaba Group, which opted for a US listing to raise at least US$15bn. AS Watson, the retail arm of conglomerate Hutchison Whampoa, pushed back its US$5bn IPO after receiving an investment from Singapore’s Temasek Holdings. Citic Group’s plan to inject assets into subsidiary Citic Pacific also takes a potential US$10bn IPO off the table (see Equities section).

WH Group, which received listing approval from the Stock Exchange of Hong Kong last Friday, intends to raise US$5bn–$6bn. At US$6bn, the IPO would be the biggest in the Asia-Pacific region since October 2010, when AIA Group raised US$20.4bn.

The fundraising size of WH Group could be even bigger than US$6bn, as the current estimate is based on the sale of all-primary shares, according to two sources. CDH Investments, holder of about 33% of WH Group, is also looking to sell some shares in the IPO, said one of the sources.

WH Group is scheduled to start pre-marketing the IPO on Monday and to begin bookbuilding on April 7, if it wins approval from the regulator. The company is aiming to wrap up the transaction before the Easter holidays.

Roll call

There are seven sponsors on the deal. They are BOC International, Citic Securities International, DBS, Goldman Sachs, Morgan Stanley, Standard Chartered and UBS.

The seven banks are also joint global co-ordinators and joint bookrunners on the IPO with eight others, namely Bank of America Merrill Lynch, Barclays, CICC, Credit Suisse, Deutsche Bank, ICBC International, JP Morgan and Rabobank.

CLSA, now a unit of Citic Securities, is listed as a joint global co-ordinator and joint bookrunner, but is not counted separately from its parent.

The other 13 bookrunners are ABC International, Credit Agricole, Citigroup, China Merchants Securities, CCB International, CMB International, Daiwa, Guosen Securities, Haitong International, HSBC, Jefferies, Natixis and Nomura.

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