Companies listing in HK choose fewer advisers

Companies going public in Hong Kong are getting the message that less is more.

Betting they could fetch higher valuations, Chinese companies hired sometimes dozens of banks to sell their initial public offerings in the last two years. The trend backfired, as the IPOs tended to underperform those using fewer bankers, and valuations were no higher, data compiled by Bloomberg show.

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Pork producer WH Group Ltd, whose IPO imploded in April after it enlisted a record 28 banks, is trying again, using just two main advisers in an effort to raise about $2.1 billion. Luye Pharma Group Ltd hired only three banks when it went public in early July in an $878 million offering in Hong Kong.

A return to fewer deal advisers should also spell good news for the banks, which have seen IPO revenues drop as they share fees with more competitors.

"People are voting that the structure is not working," said Brett McGonegal, executive managing director of Hong Kong advisory firm Reorient Group Ltd. "For the banks, if you're now splitting it with 10 times as many people, the economics change dramatically."

Luye and four other companies that completed first-time share sales in Hong Kong this year of at least $500 million used on average seven advisers, or bookrunners, the least since 2011 and down from an average of 11 last year.

"Having too many banks will make it hard to coordinate, and conflicting messages may be sent out to investors in roadshows as a result," Luye Chairman Liu Dianbo said in a recent interview.

A Bloomberg review of 25 offerings in the past three years showed that the post-IPO performance of companies that used the most advisers tend to trail other deals. The 12 companies that used an above-average number of bookrunners have underperformed the Hang Seng Index by an average 14.3 percentage points since they started trading. The remaining issuers trailed the benchmark by just 2.2 percentage points on average.