Cornerstone investors: still key for HK IPOs
Budweiser Brewing Apac is on track to seal the biggest IPO globally so far this year, and the largest in Hong Kong in more than a decade. While the base size of up to HK$76.4bn ($9.8bn) alone is impressive, equally so is the company’s decision to eschew cornerstone investors altogether. But there’s a long way to go before other issuers will be able to follow in its footsteps.
The Asian arm of Belgian brewer AB InBev, known for its Budweiser and Corona beers, launched its jumbo listing on the Hong Kong Stock Exchange on July 2 to much fanfare. Orders started coming in nice and early as investors proved eager to get their hands on the company’s strong consumer story.
That is not all. Budweiser’s decision not to have cornerstone investors take up a portion of the IPO ahead of launch has also become the talk of the market.
Cornerstones are a staple of Hong Kong IPOs, allowing issuers to park some of the stock in the hands of big investors and high-profile tycoons who will support the deal and reduce the risk of failure.
Take the examples of Hong Kong's biggest four IPOs over the past four years: Postal Savings Bank of China raised HK$57.6bn with six cornerstones taking HK$44bn (a whopping 76% of the offering) in September 2016; seven cornerstones including state-owned enterprises such as China Mobile contributed $548m-equivalent to help smartphone maker Xiaomi raise HK$37.1bn in June 2018; China Tower bagged HK54.3bn with 10 cornerstones contributing a combined $1.4bn-equivalent in August 2018; while Meituan Dianping, an online start-up, raised HK$33.1bn with five cornerstones taking 37% of its offering last September.
Given such precedents, it’s remarkable that Budweiser is going it alone, and not relying on strategic connections to woo investors — a smart decision given the overhang that is often created in the secondary market by locking up investors.
But any ECM bankers hoping that cornerstone involvement may be diminishing in importance in Hong Kong will be mistaken. Budweiser may be able to pull off this feat, but other issuers eyeing chunky IPOs are less likely to do so.
Why? Because Budweiser is unique in its size and far outweighs its competitors. It was the largest brewer in Asia Pacific by retail sales in 2018, according to GlobalData research cited in the IPO prospectus. In addition, its link to Belgian brewer AB InBev, rather than a mainland company, means it can get away without bringing in big Chinese investors ahead of a deal.
Other issuers will find it hard to match both AB InBev’s reputation and this deal’s status as a potential bellwether for Hong Kong.
The volatility in the Hang Seng Index this year also means that other IPO-hopefuls will be keen to find cornerstone support to give their planned floats a shot in the arm. Although the index is up 8.79% year-to-date, there has been plenty of turbulence.
The full impact of Budweiser’s decision will only be seen after bookbuilding closes this week, and the stock starts trading on July 19. But its performance will show other issuers whether cornerstones are an optional, or still a key, ingredient for a successful IPO.