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Investors vexed by WH Group's army of IPO underwriters
April 20, 2014 / 9:20 PM / in 3 years

Investors vexed by WH Group's army of IPO underwriters

HONG KONG (Reuters) - The world’s biggest pork company has deployed 29 banks to market its up to $5.3 billion Hong Kong IPO in the hopes of getting a better price for its shares in a volatile market. But instead of creating a buzz, the underwriters are creating confusion.

China’s WH Group Ltd is pricing its shares this week as it raises funds to help repay loans taken to finance its $4.9 billion acquisition of U.S.-based Smithfield Foods Inc last year.

WH Group is looking to price its shares between HK$8.00 and HK$11.25 each. The unusually wide indicative range reflects the uncertain outlook for a market that has fluttered between plus 7 percent and minus 7 percent so far this year.

To pull in as many investors as possible, WH Group has dispatched a record number of underwriters, but that strategy appears to be creating an unintended effect. There are just too many bankers offering varying degrees and depth of advice, some fund managers say.

“I am getting calls from different banks for the same deal,” said a Hong Kong-based hedge fund manager, who declined to be identified to avoid jeopardizing his relationship with the bookrunners. “Do I place my order with one of you guys or eight of you guys? That’s one of the reasons why I also haven’t really placed an order. I am not sure what to do here.”

Issuers sometimes pick large underwriting teams because they have had longstanding business with certain lenders or they are rewarding banks for past deals.

The syndicate of banks that lent WH Group, previously known as Shuanghui International Holdings, $4 billion to secure its acquisition of Smithfield Foods included Credit Agricole, DBS, Natixis, Standard Chartered and Rabobank. The five banks were hired as bookrunners of WH Group’s IPO.

WH Group has received the backing of many financial institutions in its business, and the resources of those banks and their continued support would contribute to the success of its IPO, the group said in a reply to an e-mail seeking comment on why it had hired 29 bookrunners.

Asian deals in general also tend to have more underwriters.

Chinese insurer PICC Group (1339.HK) raised $3.1 billion in 2012 with the help of 17 banks. Last year, China Galaxy Securities (6881.HK) set a fresh record in Hong Kong, hiring 21 underwriters for its $1.1 billion initial public offering.

By contrast, Brazilian insurer BB Seguridade Participacoes SA (BBSE3.SA) had just eight joint bookrunners for its $5.7 billion IPO last year. That deal generated about $57 million in fees, according to its prospectus.

MARKETING CHAOS

The trend of unusually large underwriting syndicates has been around for years and is more pronounced in difficult market conditions.

Large underwriting teams can increase the chances of success by reaching out to a wider palette of investors. But that strategy turns ineffective when banks try to outdo one another. The WH Group bookrunners stand to get nearly $80 million in fees in total - but split many ways.

Both PICC Group and China Galaxy priced their IPOs near the bottom of their indicative ranges. PICC’s stock has since fallen 10.3 percent, while China Galaxy’s shares have slipped 5.1 percent.

“The level of advice and the distractions are apparent in this transaction,” one banker involved in the WH Group IPO said. “The company would have gotten a better price with a smaller group, with more control of the message, over marketing of the deal.”

WH Group tried to avoid potential confusion and conflict among bookrunners by naming just four banks - BOC International, Goldman Sachs Group (GS.N), Morgan Stanley (MS.N) and UBS UBSN.VX - as “active” bookrunners, putting them in charge of the book - a rare move in Asian IPOs, sources said.

A group of 12 banks that wrote research on WH Group were given the green light to call potential investors and market the IPO, while the rest “were told to sit quietly and not even pick up the phone,” according to one banker involved in the IPO, who was not authorized to speak publicly on the matter.

Some banks apparently did not heed the company’s advice on staying put.

“It really irritates the investor base and makes them not want to do the deal because in some cases there are just too many people bugging them,” said another banker involved in the deal.

The IPO itself is not expected to be at risk, with the deal offering investors a chance to buy into the Chinese pork demand story. The shares are expected to be priced as planned on April 22, sources familiar with the deal said.

The share sale will be the second-biggest IPO of a food and beverage company behind Kraft Food Inc’s $8.7 billion deal in June 2001.

WH Group is slated to debut on the Hong Kong stock exchange on April 30.

Reporting by Elzio Barreto; Editing by Denny Thomas and Ryan Woo

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