Asian IPOs: Fighting over spilt milk

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Huishan Dairy deal shows how the trend for multiple bookrunners is out of control.

A spat between bankers from rival firms working on the same initial public offering in Hong Kong shows how annoying the process of bringing companies to market is becoming for all concerned.

The argument happened at a meeting involving no fewer than a ludicrous 20 underwriters to the planned $1.3 billion IPO of China Huishan Dairy Holdings.

The nature of the spat is symptomatic of problems that have plagued banks in the region in recent times. Apparently a banker from Goldman Sachs threatened to have a banker from HSBC fired after a heated exchange about cornerstone investors.

Not to be outdone, or mistaken for somebody humble, the HSBC banker angrily asked the Goldman banker if he knew who her father was, who her grandfather was. It came just weeks after JPMorgan was at the centre of its latest investigation at the hands of US regulators, this time into the practice of hiring so-called princelings, who are presumably not unlike this uppity sounding HSBC employee, in Hong Kong and China.

But beyond who said what to whom and why, the incident highlights some of the problems with a market that has failed to come to life after several recent false dawns. Bringing cornerstone investors to the party has become a requirement for banks hoping to get a slice of deal economics that are increasingly thin.

Almost all of the deals that have eventually come to market in recent months have done so as a result of the safety net provided by cornerstones. Against the backdrop of continuing market volatility, companies have been grateful for the cushion they provide.

Multiple bookrunners provide investors who are a sure thing in return for a role on the deal and a chunk of change. The presence of cornerstones is clearly comforting.

But cornerstones also provide no test of underlying investor appetite and their presence does not mean that a company will prosper on a market debut, rather only guaranteeing that it will make the debut. The practice of companies appointing scores of bookrunners just to get to the investors they bring is becoming a sore point. If the spats continue, they might decide that for all but the best paydays it is not worth the aggravation.