Want a lesson in how to make a pig’s ear of an IPO? Look no further than the recent travails of WH Group, the world’s largest pork company.
Its planned flotation on the Hong Kong Stock Exchange was initially billed as the latest saviour of that stuttering market, looking set to raise up to $6 billion, making it the largest IPO since AIA’s $20.5 billion 2010 offering.
But that figure was quickly shown to be wildly optimistic and was slashed to just $1.9 billion. The sheer magnitude of this reduction is enough to send those investors that might have been interested in the first place scurrying away from the deal before it comes to market even at this vastly reduced size, suggesting, as it does, a worrying lack of confidence within the issuing firm itself.
WH proceeded to heighten these concerns still further when it said it would pull the deal if certain conditions were not met. And shareholders who were initially going to cash out of their shareholdings said in the updated term sheet that they would no longer be doing this, further adding to the sense of confusion surrounding the whole deal.
WH’s decision to add another 11 banks to an already bloated initial roster of 17 bookrunners was an early cause for worry in the IPO process.
The Sino-US pork group, formerly known as Shuanghui International, has seemingly handed a role to most of the banks active in Hong Kong.
There are several potential reasons for the appointment of this merry band of bookrunners. Cynics might argue that it is an attempt by the company to block any negative research that might hurt its prospects, by giving every bank that might publish that research a slice of the pie.
Then there is the fact that, following the recent trend, most of these bookrunners will probably be expected to bring at least one cornerstone investor to the deal, thereby guaranteeing initial backing for the flotation regardless of prevailing markets conditions, which continue to be volatile.
But market conditions aside, any company that shows such lack of conviction in its own deal is unlikely to have investors falling over themselves to back it.