HONG KONGâ€"Hong Kong's market for new stock listings, which has been moribund for months, is showing new signs of life thanks to a small circle of very big investors.
On Friday, one of China's biggest state-owned insurers raised 24 billion Hong Kong dollars, or $3.1 billion, in the city's largest initial public offering of the year after the company priced its shares near the bottom of their previously indicated price range.
P.I.C.C. is the biggest player in China's fragmented market for property and casualty insurance. The company sold 6.9 billion shares that were priced Friday at 3.48 Hong Kong dollars, or $0.45, apiece, according to two people with direct knowledge of the deal. That was at the lower end of the range of 3.42 to 4.03 dollars per share that the company had sought. The I.P.O would have raised as much as $3.6 billion at the top end of the range.
But more than half of the shares sold by the People's Insurance Company (Group) of China, or P. I.C.C., founded in October 1949 as the Communist Party came to power, went to 18 so-called cornerstone investors. Those are large companies and funds that commit to buying a big chunk of the offered stock and agree not to sell their holdings for a fixed period, in this case six months. Companies and their bankers see this as a way to shore up support for new listings among institutional investors and the general public.
P.I.C.C.'s cornerstone investors together bought shares worth $1.82 billion and accounting for an exceptionally high 59 percent of the total. These buyers included foreign peers like American International Group, the European reinsurer Scor SE, Tokio Marine of Japan and Ingosstrakh Insurance of Russia.
But Chinese state-owned companies also played a crucial role in lending support, with eight buying $845 million worth of shares, for 46 percent of the cornerstone allocation. Among the government-owned buyers were China's biggest electricity grid op erator, a machinery manufacturer, an aerospace company and even a domestic rival, China Life Insurance, the country's biggest insurer with assets of more than 1 trillion renminbi, or $160 billion.
The heavy reliance on cornerstone investors in the P.I.C.C. deal represents a rising trend in Asian listings that is most pronounced in Hong Kong. Of share sales worth $1 billion or more so far this year, cornerstone investors in Hong Kong have taken up an average of 49 percent of the total deal value. That compares with 22 percent of such deals last year, and between 10 percent and 18 percent of such deals from 2007 to 2010, according to figures from the data provider Dealogic.
The increasing preference for precommitted investment has helped a number of deals get through despite difficult markets. Including the P.I.C.C. offering, there have been 47 new share sales in Hong Kong in the first 11 months of the year that have raised $9.9 billion. That value is down 63 perce nt from the same period a year earlier, when $26.9 billion was raised via 70 deals.
Still, in a sign that I.P.O. interest might be heating up, the retail portion of the insurer's offering saw strong demand. Applications for shares by the general public exceeded the amount of shares available to them by 17.5 times, according to one of the sources familiar with the deal. That led to a so-called clawback, which increased the retail portion of the I.P.O. to 7.5 percent of the shares being sold, up from the standard 5 percent.
No fewer than 17 banks acted as underwriters on the deal, which was led by Goldman Sachs, Deutsche Bank, Credit Suisse, China International Capital Corp. and HSBC as the global coordinators.
