| HONG KONG, April 22
HONG KONG, April 22 Haitong Securities Co Ltd's
$1.7 billion Hong Kong share offering took
center stage in Asia Pacific equity capital markets on Friday,
but it also highlighted the risks from deals partly financed by
underwriters as competition among banks grows for new listings,
Thomson Reuters publication IFR reported.
Haitong, China's second-biggest brokerage by assets,
received pledges from 11 cornerstone investors for about
one-third of the stock on offer. Banks financed a portion of
cornerstone orders totalling $330 million.
Pan-Asia private equity firm PAG and U.S. asset manager DE
Shaw & Co Ltd made the biggest commitments. Other investors
included Japan's SBI Holdings, Taiwanese brokerage KGI
Securities, Dah Sing Bank and The Oman
The deal also got about $500 million in pledges from anchor
investors, one source said Wednesday.
PAG, headed by former TPG Capital dealmaker Weijian Shan,
agreed to buy $300 million worth of Haitong shares, funding half
of the amount through a mid-term loan arranged by ICBC
International Securities Ltd, according to the offering's
prospectus. KGI had half of its $30 million pledge financed
through a one-year loan from HSBC .
Extending loans to cornerstones is not new, but disclosing
them is, an indication that a push for greater transparency in
Hong Kong is bearing fruit, said IFR in its report on Saturday.
The loans from HSBC and ICBC International also highlight
the extent to which banks are willing to go to bolster demand
for offerings, after a 37 percent plunge in equity capital
markets activity in the first quarter of 2012.
"To us, it's a normal and a win-win business. We can lend
money at normal commercial rates, while, at the same time, we
can help generate demand for the IPOs," a banker at a
bulge-bracket bank told IFR.
Cornerstones back many Asian listings, committing to buy
large, guaranteed stakes and agreeing to a lock-up period of
6-12 months during which they will not sell their shares. Anchor
investors have fewer restrictions on when they can sell the
As part of the agreement with the banks, KGI and PAG pledged
their shares in Haitong as collateral for the loans. ICBC
International agreed to not exercise its rights over the shares
until the lock-up expires, while HSBC can seize the shares at
any time if KGI defaults on the loan.
The risk with some of those loans is that if covenants are
breached, lenders could take the shares and dump them in the
market during the lock-up period, IFR said, pressuring stock
Orders from cornerstone and anchor investors help
underwriters get an early indication of demand for deals and
become particularly important in times of slow market activity.
Investment by cornerstones in Hong Kong offerings has been
around for several years. The move was originally aimed at
boosting the credibility of companies tapping IPO markets in the
early 2000s, with a seal of approval from household names
including billionaire tycoons Li Ka Shing, Lee Shau Kee and
Cheng Yu-teng, who poured millions into new listings.
The tycoons later gave way to sovereign wealth funds such as
Temasek Holdings, China Investment Corp and
the Kuwait Investment Authority and large mutual funds. More
recently private equity firms such as PAG, KKR and
Sequoia Capital have taken a greater role as cornerstone
Haitong's disclosure of the loans, which helped prop demand
for the deal, was a welcome move, IFR added.
"The regulators are happy to see more such disclosure as
this kind of information is useful for retail investors when
they consider whether or not to buy into an IPO," a source close
to the Stock Exchange of Hong Kong told IFR.