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WH Group isn’t just another bloated Chinese IPO

By Rev Hui
01 Apr 2014

With a record breaking 28 banks working on its $6bn IPO, WH Group is being seen as just another Chinese issuer equating size with success. While the number of lenders on the transaction has been met with cynicism, the pork processor is actually being very strategic in its approach.

There is an argument that large syndicates should work for big IPOs. Competition between banks should ensure that deals attract the greatest number of investors, the best pricing and make a magnificent debut on the stock exchange.

But anybody watching Hong Kong’s stock market over the last few years knows this is far from the truth as investors get bombarded with calls, cornerstones overwhelm the trade and shares slump on the first day of trading.

China Everbright Bank may have had 17 banks working on its HK$24.9bn IPO last December, but that was not enough to stop its shares falling 2.8% on the first day and 23.6% as of April 1. And the market is littered with similar examples.

At first glance, WH Group (previously called Shuanghui International), looks to be falling into the same trap with a record 28 banks and seven sponsors signed up for its listing. But rather than letting everybody slug it out for investors as is usually the case, only three have been given permission to lead the syndicate - Bank of China International, Morgan Stanley and UBS.

While there is no arguing that 28 banks is a bloated figure for an IPO, most of them will largely sit on the sidelines - a few of the 15-strong group of joint global co-ordinators group will probably be tasked with the unenviable task of printing out research reports but that is as far as the responsibilities goes.

Unlike previous issuers which thought that having more brokers could lead to better pricing and demand, what WH Group has really done is simply try to reward those who had persevered and committed to its $4bn jumbo loan last year, which was plagued with pricing and structural subordination issues, but at the same time moved to make its IPO workable.

Among the eight original mandated lead arrangers and bookrunners for WH Group’s $4bn loan (BoCI, Crédit Agricole, DBS, ICBC, Natixis, Rabobank, RBS, Standard Chartered) only RBS is not involved with the IPO, which is not surprising since the lender does not have an Asian equities business, having sold it to CIMB in 2012. Crédit Agricole, Natixis and Rabobank, in particular, are far from being regulars on Asian IPOs.

But while this 'give and you shall receive" mindset has hurt IPOs in the past, WH Group is proving that unlike its predecessors, it is possible to separate sentimentality from practicality.

By Rev Hui
01 Apr 2014