With the management road show and the institutional bookbuilding already under way, PICC Group early yesterday evening decided to elevate Citi, Haitong International, Morgan Stanley and UBS to joint bookrunners for its Hong Kong IPO, which is seeking to raise between $3 billion and $3.6 billion.
The move came just a day after these four banks were left off the list of 13 bookrunners and named joint lead managers for the offering. According to sources, the decision of which banks were given the title of bookrunners was primarily based on how much cornerstone demand had been brought in by each bank.
The Chinese insurance company in late May short-listed 17 banks to help with its Hong Kong IPO, but took its time to specify their exact roles. On Wednesday — the day before the launch of the deal and almost a week after bankers started investor education — it finally confirmed the line-up.
CICC, Credit Suisse, Deutsche Bank, Goldman Sachs and HSBC were named joint global coordinators, which was entirely in line with expectations. Except for Deutsche Bank, the other four of these banks had earlier also been appointed joint sponsors.
It also named 13 bookrunners (the five joint global coordinators plus eight others) and four lead managers.
As we noted in our story yesterday, even 13 bookrunners are too many if you want an efficient IPO process and with that many parties involved there is a clear risk that no one will take full responsibility for the offering. It also creates a lot of unnecessary uncertainty. In the weeks leading up to the launch of investor education of PICC it became clear that no bank had the full picture of what was going on, and investors didn’t know whether the bankers they were talking to about the deal at the time would eventually be involved with building the book.
An obvious solution would be to have the global coordinators running the process, but they too were only formally mandated on Wednesday this week.
At the same time, the exclusion of three such experienced banks as Citi, Morgan Stanley and UBS from an otherwise long list of bookrunners was noticeable and raised the question of what issuers actually expect out of the banks involved in their IPOs. This year there have been more and more situations where the issuers seem to believe that the most value they can add is to bring in cornerstone demand. In the case of PICC, it seemed on Wednesday as if it had stayed true to its word in May — banks that didn’t bring in any cornerstone demand didn’t get a bookrunner role.
But now it has changed its mind. According to sources, the company didn’t explain why, but one can assume that the banks that were left out on Wednesday were lobbying hard to get upgraded. The difference between being a bookrunner and a lead manager is more fees, but more importantly, the bookrunner role gives league table credit and bragging rights for having worked on the biggest Hong Kong IPO of the year.
Some people said already on Wednesday night that one shouldn’t assume that the final line-up was set in stone. And given how the process of selecting the syndicate members has been run so far, perhaps one shouldn’t be surprise at the last minute change. Still, 17 bookrunners is a worrying trend for the Hong Kong IPO market and a record that no one should strive to break.
As of this morning, the following banks have been named bookrunners for the PICC IPO: ABC International, Bank of America Merrill Lynch, BOC International, CCB International, Citi, Daiwa, Essence, Haitong International, ICBC International, J.P. Morgan, Morgan Stanley, UBS and the five global coordinators.
The offering will close on Thursday next week (November 29) and the stock is scheduled to start trading on December 7.
