Date
26 March 2017
Huarong was one of four agencies set up by Beijing in the 1990s to buy and manage bad loans from top banks. Photo: WSJ
Huarong was one of four agencies set up by Beijing in the 1990s to buy and manage bad loans from top banks. Photo: WSJ

Huarong’s Hong Kong IPO sets cornerstone record

China Huarong Asset Management Co. has raised more than 70 percent of its planned US$2.26 billion Hong Kong initial public offering from cornerstone investors.

That is a record proportion of anchor investors, ensuring the deal will go through despite concerns about the quality of its assets, the Wall Street Journal reports.

Huarong is a so-called “bad bank” which buys and manages distressed assets. It was one of four debt-clearing agencies created by Beijing in the late 1990s to take on bad loans from the country’s top banks.

The company has received commitments from cornerstone investors including state-owned property developer Sino-Ocean Land and China’s largest electricity company, State Grid Corp of China.

Cornerstone investors in Hong Kong commit funds toward an IPO and agree to buy at the float price but are tied to holding the stock for a certain period, usually six months, after the shares start trading.

Cornerstone investors can help give other investors confidence to invest in an IPO.

The IPO would be Hong Kong’s biggest since mainland China’s markets began sliding in June and helped drag down Hong Kong shares.

Huarong’s cornerstone investors, mostly state-owned Chinese firms, have committed to a total of US$1.62 billion.

At the bottom of the IPO price range, the offering would raise US$2.26 billion, meaning cornerstone investors would have 71.7 percent, which would be a record, according to Dealogic.

At the top, it would raise about US$2.5 billion, giving cornerstone investors 64 percent.

China Railway Signal & Communication Corp., which listed in August, held the previous record.

The state-owned signal maker, which raised US$1.42 billion, sold almost 67 percent of its float to cornerstone investors, according to Dealogic.

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