How many banks do you need to take a company public? There has to be a twist on the old lightbulb joke when PICC, the Chinese insurer, has shortlisted 17 to manage its proposed initial public offering. Their chances of earning a fee will depend on their ability to produce cornerstone investors. PICC is the latest Hong Kong-bound company to demand guaranteed investors. This trend is not healthy.
Cornerstones get agreed allotments of an IPO in return for accepting a lock-up period. Early big-name backers can boost a deal, but tying up large chunks of an offering is like resorting to Plan B before Plan A – convincing investors of your corporate story – has been tried.
The practice is prevalent in Asia and it matters because Hong Kong is the world’s biggest listing market, raising a third more equity than New York, its nearest rival, in the past three years. This year cornerstones have taken 30 per cent of the listings in Hong Kong. That is more than at any time in the past 15 years, according to Dealogic. Total listings this year, at $3.3bn, are running at only a fifth of 2011 levels. Banks are therefore desperate to get on deals. PICC’s $6bn-odd offering, expected to be split between Hong Kong and Shanghai, will be critical; if more than 12 banks make the deal, it would be a global record.