CICC brings 11 JGCs on board for $812m HK IPO
In a rare move, China International Capital Corp (CICC) has named all 11 banks working on its HK$6.29bn ($811.61m) high-profile Hong Kong IPO as joint global co-ordinators. But instead of sparking a turf war among its syndicate, the move has won praise from bankers on the trade. John Loh reports.
ABC International and CICC itself are jointly sponsoring the transaction, but they have roped in nine other banks as JGCs, joint bookrunners and joint lead managers — BoCom International, CCB International, CMB International, China Galaxy International, DBS, Goldman Sachs, HSBC, ICBC International, and Southwest Securities — sparking criticism from those away from the deal.
“The number of JGCs is absolutely ridiculous,” said one head of ECM syndicate. “I doubt they’ll all be involved in the allocation process, but just imagine if they were. The call will probably go on for a couple of days and will be a very painful process.”
Naming everyone a JGC will only end up diluting the value of the title, as most market participants were aware that CICC was the one calling the shots on pricing and allocation, he added. But the issuer appears to have a clear motive behind this strategy: keeping relationships.
“Some of the banks were keen to support the transaction, and since all of them have a similar role, there was no point in grouping the banks into different tiers,” said a banker on the listing.
And even though all the firms are holding a JGC title, the majority of the execution is being done by CICC — which is itself an investment bank — but the others are doing their part in marketing the float, collecting orders and distributing.
Only two banks in the syndicate have been asked to print research reports – HSBC and Goldman Sachs. CICC is not allowed to write research on its own IPO, while Citic CLSA Securities has also authored a report, although it is not part of the syndicate.
A second JGC said CICC was keeping a tight lid on bookbuilding and was not swapping books, except with some banks that were closer to CICC. “There’s a lot of background lobbying going on,” said a third JGC. “But as long as the deal gets done, it’s a win-win for all.”
Bankers away from the deal say that another factor behind such a move by CICC was deal-swapping. “This is a relationship-driven market,” said a second banker away from the deal. “One of the brokerage IPOs this year did the same thing, where they let some banks into the syndicate hoping to obtain positions in future deals.”
What’s in a name?
Most bankers, however, reckon that titles are only a token matter and do not count for much today.
“Five years ago JBRs were involved in the process and had visibility over the book, but now they are no different from lead managers,” said the second banker away from the transaction. “JGCs are the new JBRs, and JBRs are the new JLMs.”
This is largely due to intense competition in Hong Kong’s equity capital market, with various Chinese banks trying to elbow their way into deals, the banker added. Many of them end up earning league table credits and some fees, but do little work for the issuer.
In a break from the past, CICC’s approach has not hurt the execution process, as the issuer remains firmly in the driver’s seat. The situation contrasts sharply with that of WH Group, which had to pull its HK$15.9bn ($2.05bn) IPO the first time around last year due to a bloated, and poorly co-ordinated, syndicate.
In WH’s case, there were seven sponsors, who were also JGCs and joint bookrunners alongside nine other firms. On top of that, there were 13 more bookrunners.
“With CICC all the banks have well-defined roles and execution has been smooth,” said the third JGC. “Everything is rolled back up to CICC, which helps to maximise orders.”
Most bankers are of the view that while this may work in CICC’s favour, as the investment bank is leading its own IPO, the strategy was unlikely to be replicated. “It’s hard to imagine [issuers] making everyone a JGC again the next time there are 20 banks in a syndicate,” said the first JGC.
CICC, a state-owned investment bank, opened books on October 26 after a two-day pre-marketing process, with about half of the trade committed to other Chinese state-owned enterprises (SOEs).
It is marketing shares at HK$9.12-HK$10.28 each, valuing the firm at a 2015 P/B of 1.2x-1.3x. Citic Securities, one of China’s largest brokerages, is the main comparable. With Citic trading at a forward P/B of 1.24x, CICC would be valued at a discount to Citic at the bottom of guidance, and a premium if it prices at the top.
Although CICC is not offering a generous discount to new investors, demand has piled in. “Feedback has been positive from international investors and the book is multiple times covered at every level,” said a lead banker. But price guidance was yet to be released as GlobalCapital Asia went to press. Pricing is slated for October 30.
The trade has a strong chance of pricing at the top, according to another JGC. A lot of this momentum was down to the fact that CICC had garnered a substantial amount of cornerstone and anchor interest ahead of the launch.
“CICC, like China Huarong Asset Management and China Reinsurance before it, are doing well because of the scarcity of big deals in the market,” said the banker. “They were well-flagged and highly visible transactions.”
Investors also shrugged off news that CICC was investigating irregularities in trading in some of its client’s online accounts. The worker in question has left the firm, according to a stock exchange filing.
CICC is offering 611.41m shares in the base deal, expected to raise HK$5.58bn-HK$6.29bn. This is 27.5% of its enlarged share capital, of which 90.9% are primary shares and the remaining secondary shares offered by the National Council for Social Security Fund.
Ten cornerstones signed up for 57%, or $465m, of the transaction. Nearly half of them are SOEs, including Silk Road Fund, which bought $100m, and Baosteel Group, CGN Power, China Mobile, and Commercial Aircraft Corp of China, which took $50m each.
Not all the cornerstones are state-owned, with Hong Kong-based fund Value Partners and Prudential Insurance Co of America buying $50m and $25m respectively.