Cornerstones pledge $500m as Harbin readies IPO

Seven cornerstone investors have pledged $512 million as Harbin Bank becomes the latest in a long line of mainland Chinese financial institutions to seek a Hong Kong listing.

Bankers have successfully nailed down seven cornerstone investors for Harbin Bank, who have collectively agreed to allocate more than $500 million to the Chinese bank ahead of its planned $1 billion Hong Kong initial public offering.

The roadshow – originally set to start this Monday – was delayed to Wednesday due to weak market sentiment.

But after securing seven cornerstones – including Taiwan’s Fubon Life Insurance and Citic Capital, which pledged $289 million and $150 million, respectively – bankers are now set to spend the next three days meeting with long-only institutional investors and hedge funds in Hong Kong, China, Singapore, New York and Boston. The lockup period is six months.

The northeast Chinese bank is the latest in a long line of Chinese financial institutions seeking to float shares even as fears of Chinese debt crisis build. 

On offer in the IPO are 3 billion Harbin shares priced at between HK$2.89 and HK$3.33, including 2.8 billion new shares. There is also a greenshoe option of 453.5 million shares.

The deal is expected to price on March 24 and list on March 31.

Despite mounting debt worries in China after the country this month experienced its first-ever corporate bond default and broader market concerns about the crisis in Ukraine, bankers are confident that securing seven cornerstone investors will boost institutional interest in Harbin.

In addition to Fubon Life and Citic Capital's pledges, a group of five other banks, funds and real estate firms promised to invest $73 million in Harbin, which has a market cap of up to $4.72 billion, according to a term sheet seen by FinanceAsia

Negative sentiment towards the Chinese financial sector makes securing cornerstones pre-IPO all the more important, several investment bankers told FinanceAsia. One said any banks aiming to float in the current climate are “ill-advised unless they’ve locked up at least one-third [of the capital]”.

No guarantee

Even so, the presence of significant cornerstone investment offers no guarantee that a company will successfully go public.

Shandong State-owned Assets Investments, the investments arm of the Shandong government, and Jun Yang Solar Power Investments, in February pledged $40 million towards Hanhua Financial, China’s largest credit-guarantor, ahead of its planned $400 IPO in Hong Kong. But on March 7 the company decided to delay the listing, citing sluggish demand.

Data suggests that cornerstone investment in Asian banking and insurance sector IPOs is on the rise. According to Dealogic, cornerstone investors committed $3.88 billion in 2013 to financial companies in Asia ex-Japan ahead of their IPOs, a 62% increase on $2.42 billion in 2012 and a 99% jump from $1.96 billion in 2011. The total pledged is down compared with 2010 however, when financials in the region locked up $7.68 billion from cornerstone investors.

Cornerstone pledges aside, it may still prove difficult to drum up interest in Harbin, given how poorly Chinese financials have performed of late after listing.

China Everbright Bank is down 30% since it raised HK$23.25 billion ($3 billion) in a Hong Kong listing in December. Bank of Chongqing, meanwhile, is down 20% since it went public in November after raising HK$4.24 billion ($548 million), while Huishang Bank is down 1% since its November $1.2 billion IPO.

Cornerstone investors played important roles in each of these deals – Everbright signed up 20 who agreed to buy a combined total of $1.744 billion-worth of shares. It was a similar story for Bank of Chongqing and Huishang.

When you're hot, you're hot

Bankers close to the Harbin IPO added that cornerstone investors were less important for more fashionable sectors, which at the moment includes Chinese technology, gaming, consumer retail and clean energy companies. 

Technology companies in particular are in vogue – China’s largest Twitter-like service Weibo, owned by New York-listed Sino Corp, aims to raise $500 million ahead of its US IPO, while e-commerce giant Alibaba Group, the most anticipated IPO since Facebook, is tipped to secure $15 billion.

Technology companies are taking advantage of demand to raise fresh capital in follow-on share offerings as well – China Mobile Games & Entertainment is seeking $100 million through the sale of some 3.4 million American depository shares.

ABC International Holdings, BOC International Holdings and CICC are the lead banks on the Harbin deal, while Credit Suisse, CIMB, Deutsche Bank, DBS Bank, Bocom International Holdings, China Merchants Securities, CMB International and Haitong International Securities Group are acting as joint bookrunners.

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