(The author is a Reuters Breakingviews columnist. The
opinions expressed are her own)
By Wei Gu
HONG KONG, Nov 22 (Reuters Breakingviews) - The People’s
Insurance Company of China is all about the power of big
numbers. The insurer's 17 investment banks have helped it sign
up 17 "cornerstone" backers in advance of its $3.6 billion Hong
Kong offering. Though they're hardly big-name value investors,
they improve the likelihood of getting the deal done.
Signing up cornerstone investors ahead of an IPO is largely
a Hong Kong phenomenon. The original idea was that big-name
investors would put a valuation on the stock in return for a
guaranteed allocation. A vote of confidence from local tycoons
and sovereign wealth funds would help to boost confidence among
In recent years, cornerstone investors have tended to take
between 10 percent and 20 percent of the shares on offer.
Hot IPOs like Prada’s 2010 offering dispensed with them
altogether. Today, however, issuers and banks are increasingly
relying on big investors to help mop up the stock: PICC's 17
cornerstones are picking up more than half of the IPO.
Some investors are buying for strategic reasons. Seven of
PICC's 17 investors are fellow insurance companies, including
American International Group (AIG.N), insurers from France,
Japan and Russia, and three domestic rivals such as China Life
(601628.SS). These buyers tend to have a relationship with the
issuer, or are hoping to build one. AIG, which is investing $500
million, simultaneously signed a deal with PICC to sell life
insurance in China. That gives the U.S insurer, which was forced
to offload its Asian arm in the wake of the crisis, a new
foothold in the world's most populous market.
Other Chinese companies have different motivations. Some
companies, like Zijing Mining (601899.SS), Yuexiu REIT (0405.HK)
and Fosun International (0656.HK), have staged successful
initial public offerings in Hong Kong. Getting approval to move
the proceeds back home may take months or years, and some may
prefer to leave it offshore. Investing in familiar Chinese
stocks in Hong Kong is one place to park the cash.
But there are two drawbacks to over-replying on
cornerstones. First, it reduces liquidity in the stock, as
cornerstones usually agree to not to sell for six months or a
year. And when those lock-ups expire, the fear is that large
amounts of stock will flood to the market. In a tough market,
however, PICC and its 17 investment banks need all the help they
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- People's Insurance Company (Group) of China (PICC) secured
$1.9 billion in commitments from 17 cornerstone investors for
its $3.6 billion Hong Kong initial public offering, Reuters
reported on Nov. 21.
- PICC Group has got pledges from American International
Group (AIG), Chinese utility State Grid Corp, the country's
leading gold miner Zijin Mining Group, defence contractor
Spacechina and China Life Insurance Co Ltd.
- China International Capital Corp (CICC), Credit Suisse
Group AG, Goldman Sachs Group Inc and HSBC Holdings Plc won
mandates as sponsors of the deal.
- The list of banks also helping to underwrite the IPO
includes Bank of America Merrill Lynch, Morgan Stanley and UBS
AG as well Chinese firms such as ABC International and BOC
- Reuters: AIG, others to take up half of China PICC's $3.6
bln HK IPO [ID:nL1E8MKG2X]
- For previous columns by the author, Reuters customers can
click on [GU/]
(Editing by Peter Thal Larsen and Katrina Hamlin)
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Keywords: BREAKINGVIEWS HK CORNERSTONES
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