Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIAWassup, Hong Kong?
W
hen it comes to a Hong Kong IPO, AB InBev’s
SPIN
OFFûOFû"UDWEISERû"REWINGû!SIAû0ACIlCûISû
looking like the genuine article, to borrow one
of the company’s old slogans.
Budweiser opened books last week on a Hong Kong listing
that will raise up to US$9.8bn. As well as helping the parent
PAYûDOWNûDEBTûANDûCREATEûAûPLATFORMûFORûFUTUREûlNANCINGS û
THEûDEALûOFFERSûINVESTORSûACCESSûTOûAûPROlTABLEûBUSINESSûANDû
the growing Chinese consumer sector.
That alone is enough to warrant careful attention, after
an onslaught of technology IPOs that have failed to perform.
4HEûSTRUCTUREûOFûTHEûDEAL ûHOWEVER ûISûMOREûSIGNIlCANTû
for the wider market. Budweiser is selling shares without
a single cornerstone investor. That is a big break from
tradition in Hong Kong, where issuers and underwriters
have been far too keen to lock away stock in return for a
little less risk of a failed deal.
The cornerstone concept remains popular with
Chinese companies that want to show off their strategic
connections, or with biotechnology companies looking
for specialist investors to validate the science behind their
products.
But Hong Kong no longer needs to rely on a handful
of big-name investors to price an IPO for a classic, cash-
generating business such as Budweiser. Many bankers
argue the practice has outlived its usefulness, with some
calling for the exchange to scrap the lock-up requirement
altogether.
The main problem with locking up cornerstone investors
is the overhang it creates in the secondary market. Meituan
Dianping, the Chinese online delivery service, is a case in
point: already languishing below its IPO price, the stock
SLUMPEDûALMOSTûûINûTHEûlRSTûTWOûWEEKSûOFû-ARCHû
when six-month lock-ups for its IPO cornerstones expired.
Meituan only recovered to its IPO price last week, for the
lRSTûTIMEûSINCEûTHEûSTABILISATIONûPERIODûENDEDûLASTû/CTOBER
For all its recent reforms, Hong Kong still needs to
convince global investors that it can offer the liquidity to
rival the US exchanges. A major, index-eligible offering
from Budweiser is a far better recipe.Bond market politics
I
ndia and Malaysia are realising the value of a deep local
bond market, even if it is only in forestalling a hit to the
national budget.
India’s government is preparing a massive bond
programme to take on some of Air India’s less attractive
assets and liabilities ahead of a planned sale. Malaysian
leaders are working on something similar to take over four
highways so they can meet a pre-election pledge to scrap
tolls.
The motivations may be different – one is privatising, one
is nationalising – but in both cases the governments are
turning to the local bond markets to meet policy objectives.
They both also appear set to use SPV structures to keep the
liabilities at arm’s length.
The generous interpretation is that these deals show
Asia’s local currency bond markets are versatile enough to
SUPPORTûTHISûKINDûOFûlNANCIALûENGINEERING
In reality, however, the capital markets do not exist
TOûALLOWûGOVERNMENTSûTOûFUDGEûNATIONALûlNANCESû2ATHERû
than committing to years of interest payments, both
governments would be better off in the long run by paying
more upfront rather than spreading the burden over years
to come.
The greater, often overlooked, risk is that large deals like
these divert valuable capital from more productive uses.
)TSûALSOûTRUEûTHATûBOTHû)NDIAûANDû-ALAYSIAûBENElTûFROMû
compliant state investors: Air India’s last bond issue in
2012 was bought entirely by Employees’ Provident Fund
Organisation and Life Insurance Corp of India, both
controlled by the government.
To avoid distorting the market, India and Malaysia will
need to resist the temptation of relying only on these
friendly institutions and offer real, market-driven pricing.
)FûTHESEûJUMBOûlNANCINGSûALLOWûINVESTORSûTOûMEETûTHEIRû
own objectives, too, that really would be a valuable policy.The main problem with locking
up cornerstone investors is
the overhang it creates in the
secondary market.