The world’s biggest pork company has deployed 29 banks to market its up to US$5.3 billion Hong Kong initial public offering (IPO) in the hopes of getting a better price for its shares in a volatile market. However, instead of creating a buzz, the underwriters are creating confusion.
China’s WH Group Ltd (萬洲國際) is pricing its shares this week as it raises funds to help repay loans taken to finance its US$4.9 billion acquisition of US-based Smithfield Foods Inc last year.
WH Group is looking to price its shares between HK$8.00 and HK$11.25 each. The unusually wide indicative range reflects the uncertain outlook for a market that has fluttered between plus 7 percent and minus 7 percent so far this year.
To pull in as many investors as possible, WH Group has dispatched a record number of underwriters, but that strategy appears to be creating an unintended effect. There are just too many bankers offering varying degrees and depth of advice, some fund managers say.
“I am getting calls from different banks for the same deal,” said a Hong Kong-based hedge fund manager, who declined to be identified to avoid jeopardizing his relationship with the bookrunners. “Do I place my order with one of you guys or eight of you guys? That’s one of the reasons why I also haven’t really placed an order. I am not sure what to do here.”
Issuers sometimes pick large underwriting teams because they have had longstanding business with certain lenders or they are rewarding banks for past deals.
The syndicate of banks that lent WH Group — previously known as Shuanghui International Holdings (雙匯國際) — US$4 billion to secure its acquisition of Smithfield Foods included Credit Agricole, DBS, Natixis, Standard Chartered and Rabobank. The five banks were hired as bookrunners of WH Group’s IPO.
WH Group has received the backing of many financial institutions in its business, and the resources of those banks and their continued support would contribute to the success of its IPO, the group said in a reply to an e-mail seeking comment on why it had hired 29 bookrunners.
Large underwriting teams can increase the chances of success by reaching out to a wider palette of investors, but that strategy turns ineffective when banks try to outdo one another. The WH Group bookrunners stand to get nearly US$80 million in fees in total — but split many ways.
“The level of advice and the distractions are apparent in this transaction,” one banker involved in the WH Group IPO said. “The company would have gotten a better price with a smaller group, with more control of the message, over marketing of the deal.”
WH Group tried to avoid potential confusion and conflict among bookrunners by naming just four banks — BOC International (中銀國際), Goldman Sachs Group, Morgan Stanley and UBS — as “active” bookrunners, putting them in charge of the book — a rare move in Asian IPOs, sources said.
A group of 12 banks that wrote research on WH Group were given the green light to call potential investors and market the IPO, while the rest “were told to sit quietly and not even pick up the phone,” according to one banker involved in the IPO, who was not authorized to speak publicly on the matter.
Some banks apparently did not heed the company’s advice on staying put.
“It really irritates the investor base and makes them not want to do the deal because in some cases there are just too many people bugging them,” another banker involved in the deal said.