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Xiaomi super-syndicate lifts noise-to-signal ratio

Xiaomi's super-syndicate could make it harder to distinguish signal from noise.

[HONG KONG] Xiaomi's super-syndicate could make it harder to distinguish signal from noise. The Chinese handset-maker picked 23 banks for a Hong Kong initial public offering that could raise more than US$6 billion. Having so many hangers-on tripped up previous listings and is unhelpful for a debut that already has dialed down its exuberance.

Mainland companies routinely hire armies to sell stock. Postal Savings Bank of China set a record two years ago with 26 bookrunners for a US$7.6 billion flotation, according to Thomson Reuters data. Issuers are happy to pay the same and get more names on the ticket. But it presents problems.

Investors can feel starved of independent voices, since this leaves so few unconflicted analysts. Leading equity teams can be irked about sharing fees and league-table credit. At worst, banks can feel pressured into telling companies what they want to hear, not what the market really thinks, especially if the alternative is being sidelined or dropped from the deal. WH Group, the pork producer, notoriously botched an attempt to list in 2014 flanked by 29 underwriters before coming back to market with just two.

Nowadays, banks say they are wise to the risks. That means a strict hierarchy, with lead advisers tightly controlling the process. And here it is clear that Goldman Sachs, Morgan Stanley and CLSA are in charge. But some US$76 million of fees are at stake. And in Hong Kong, companies have discretion in how they carve up the spoils. That creates a temptation for banks to talk up the demand they see, potentially making it hard to gauge genuine appetite.

Touting itself as a "new species", Xiaomi is already a complex proposition. The deal is also a moving target: a valuation range of US$55 billion to US$70 billion is below previous unofficial estimates, and a plan to simultaneously sell the mainland's first Chinese Depositary Receipts was abruptly postponed. Although institutional investors have placed orders for all the shares allotted them in the Hong Kong sale, some were at the bottom of the price range, according to Thomson Reuters publication IFR. Xiaomi and its top banking trio must ensure they hear the market loud and clear.

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Institutional investors placed orders for all the shares allotted to them in the Hong Kong initial public offering of Chinese smartphone maker Xiaomi, IFR reported on June 22, citing unnamed people close to the deal.

The Thomson Reuters-owned trade publication added that certain orders were coming in around the bottom of the indicative price range of HK$17 to HK$22 each.

At the top of the price range, the IPO could raise US$6.1 billion, excluding a so-called greenshoe option for underwriters to buy additional shares, which could increase the deal's size by 15 percent.

The IPO's joint sponsors are Goldman Sachs, Morgan Stanley and CLSA. Nine other banks are acting as joint global coordinators and joint bookrunners, plus 11 more as joint bookrunners.

Xiaomi will pay an underwriting commission of 1 per cent and an incentive fee of up to 0.25 percent, according to offering documents filed on June 25, implying fees of up to US$76 million. It will also pay a combined US$150,000 to the sponsors.


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