Breakingviews: Hong Kong’s IPO debutants rely on helping hands

Hong Kong’s latest wave of listings are attracting some big helping hands. Anheuser-Busch InBev raised $5 billion through a relaunched float of its Asia-Pacific unit. There’s appetite for new share issues in the city despite ongoing protests, but at a discount and with strong cornerstone support.

After its attempt to sell shares in Budweiser Brewing Company APAC fell flat in July, AB InBev sold the unit’s low-growth Australian division to Japan’s Asahi, then relaunched the process last week with backing from Singapore state investment fund GIC. Priced at the bottom end of a marketed range, the new deal gives Budweiser APAC an enterprise value of $45 billion.

When adding in the generous $11 billion raised from Asahi, that’s within the roughly $53 billion to $62 billion range the company had initially sought. A listing by Chinese biotech company Henlius, which raised $410 million last week in the city’s first major IPO since July, looked similar. Support from four cornerstone backers including the Qatar Investment Authority got it across the line, but it too priced at the lower end.

The return of such giant backers may raise some eyebrows. A staple of the Hong Kong market in tough times, cornerstones played a critical role following the Asian financial crisis of 1997, when tycoons and sovereign wealth funds were key to getting deals done. Selling a big slug of stock ahead of an IPO reduces risk for issuers and underwriters, and restrictions on share sales by cornerstone buyers can ease volatility.

On the other hand, such arrangements can stifle secondary-market liquidity, and foist unfit companies onto public markets. Menswear maker China Outfitters tried and failed to launch an IPO in 2011, only to succeed later by selling three quarters of a new offering to cornerstone backers including KKR. Shares bounced at first, but within a few months began a ceaseless slide; they now trade at 9% of the offering price.

Companies queuing up to raise capital in the Fragrant Harbour, including warehouse operator ESR and consumer-finance company Home Credit, may need to take a similar tack in these tough times. Sometimes it’s good to have a giant in your corner.

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