Cornerstone ipo

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cornerstone ipo

For European IPOs, cornerstone investments are typically made at the same share price as other IPO investors. While recent LSE investments. In the context of an IPO, a cornerstone investor is an investor (typically a large institution) which agrees to subscribe for or purchase a. Chinese artificial intelligence firm SenseTime Group Inc. secured about $ million from nine cornerstone investors, as it reopened orders. INVESTING FOR TEENS Files or for Known requires up cheats 1. Vulnerable systems Ford also. Answer The observation time can find layout, RDP names time. Thank you "What's new"-tile.

Its Listing Committee first reported it was considering the impact of cornerstones on free float, shareholder base, price discovery and the share overhang in , and it has asked the HKEX to continue to monitor the situation. In , it asked the HKEX to conduct discussions with stakeholders to gain a better understanding of how cornerstones form part of an offering, and impact the price discovery process, in order to conclude whether any changes are necessary.

Linklaters counsel Terri Poon also participated in the drafting of this article. I n recent years, the Hong Kong market has seen strong cornerstone investment becoming the trademark of IPOs of PRC state-owned companies, especially in mega deals where up to 20 such investors have participated at one time. Another distinguishing feature of the current Hong Kong IPO market is the demographic of the cornerstone investors. In the past, these were typically funds and investment companies from the international market.

As of late, most of those that participated in mega size H-shares deals were mainland companies and often also state-owned. In , a leading securities firm launched its much anticipated public offering for the first time, indicating in its prospectus that its shares would tentatively be listed by the end of However, the market was volatile and hit a low point at that time.

The marketing efforts during the international roadshows were unable to attract sufficient interest from foreign private equity funds to cover the international tranche offering and pricing was delayed indefinitely. After this unavailing attempt to market its shares in roadshows, the stated-owned, embarrassed applicant took matters in its own hands and turned to its fellow compatriots in the PRC to bridge the gap in its second attempt by inviting domestic investors to subscribe.

As a result, only a fraction of the offered shares were offered to retail investors as one third of the shares had already been sold to Chinese state-run companies. More than 10 cornerstone investors subscribed for approximately one-third of the offered shares in the second launch in and the IPO went on to achieve a higher agreed price for its shares.

This event demonstrated the benefit of having cornerstones to ensure the successful launch of an IPO and achieve a higher price. With guaranteed subscription from cornerstone investors in high volume, strong and genuine demand from the public is no longer a key consideration for deal launches.

However, the problem with having a high concentration of cornerstone investment is the lack of liquidity of the shares post-listing as the cornerstone shares are subject to a lock-up of six months. What makes matters worse is that some state-owned cornerstone investors are not as investment centric as private equity funds and do not actively manage their investment.

Their shares become parked in the account of the cornerstone investors, meaning, even after the lock-up period, such shares are not traded. The nature and role of cornerstone investment has always caught the attention of the regulators. Dating back to , the Hong Kong Stock Exchange HKEX published a consultation paper on whether a holistic approach should be taken to consider the nature of cornerstone investment.

To ensure sufficient market for shares after listing, it consulted on whether cornerstone investors should be considered as members of the public by taking into account all facts and circumstances of each application on a case-by-case basis. However, the HKEX admitted that taking such a holistic approach would contradict the principle of regulatory clarity. But no concrete action or reform was taken addressing the issue of large chunks of offered shares being subscribed by cornerstone investors before being marketed to retail investors.

Relevant waivers on public floats have also been granted, effectively reducing the shares held by retail investors who are not subject to lock-up periods. The approach of reducing the shares being held by a wider base of public hands to secure a better offer price and size is passively endorsed by the regulator.

Some questions need to be asked: substantial cornerstone investment leads us to wonder whether there is a real market for the securities. The Hong Kong stock market has recently topped the global charts in terms of amount of funds raised by IPOs.

The IPO boom was especially evident in China and the US for much of the year, while Europe saw significant activity in the fourth quarter. The surge in activity was driven, in part, by new listings of special purpose acquisition companies SPACs. For the overall IPO market, the momentum has continued into and is expected to persist for the rest of the year and beyond thanks to a strong pipeline of candidates from all regions. In this context, having a supporting investor is especially beneficial for companies that enter the IPO market without a track record of profitability, such as many tech startups.

The key differences between the two types of supporting investors are timing and size of investment. See Exhibit 1. Issuers can benefit in several ways by taking on supporting investors. An important caveat: Issuers should be wary of selling a stake to an anchor investor if they are simultaneously preparing for an IPO and a full sale to a third party and intend to decide which track to follow at a later date.

If an issuer takes on an anchor investor but then decides to pursue a trade sale instead of an IPO, the anchor investor could become a roadblock, such as by refusing to sell its stake. Several types of entities have emerged as supporting investors in recent years. Financial investors—private equity and venture capital firms—seek to secure an ownership stake in an attractive target when facing a competitive, seller-friendly market.

Sovereign wealth funds and public pension funds are looking for IPO candidates that fit their criteria for asset allocation and investment size, among other deal requirements. Additionally, multiple entities can join forces within these categories such as financial investors forming a group to be anchor or cornerstone investors for a particular issuer. Issuers that take on supporting investors create more value than those that do not, according to our analysis of IPO performance.

They are less likely to experience underpricing, as measured by the difference between the final offer price and the price per share after the IPO for example, after the first day of trading. They also have superior TSR, as measured over various time frames after the listing. Moreover, these listings generally feature superior risk-return profiles, as measured by the lower volatility resulting from greater investor confidence. Recent examples illustrate the potential for issuers to boost IPO valuation and price by taking on supporting investors.

See Exhibit 2. Although supporting investors generally have a positive influence on value, their presence does not guarantee a successful listing. Each IPO is a complex undertaking. Achieving the anticipated benefits also requires overcoming several hurdles.

There are generally three approaches to finding the right match:. Taking on an anchor or cornerstone investor is an important option to consider whenever a company intends to offer a large equity stake in its IPO. But careful planning and well-executed negotiations are essential. Issuers that find the right match can reap the rewards of having a supporting investor onboard for their entry into the public market. The motivations to go public via a reverse merger with a SPAC are similar to those underlying the decision to onboard a supporting investor.

In light of this, following the traditional IPO route with the addition of a supporting investor could be seen as a viable alternative. The issuer gains the advantages of a true public offering while enjoying the benefits of having a respected player onboard to support the offering. Having a known and respected investor onboard builds confidence among other potential institutional and retail investors and will likely facilitate the book building process.

Maximizing Value. Joining forces with a supporting investor can help to maximize value.

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May 26 C ornerstones, which began in Hong Kong as a mechanism to attach prestigious names to new listings to generate interest and momentum, appear to have evolved into becoming security blankets to minimise the risk of failure, especially for deals launched in choppy waters.

Cornerstone investments have continued their prominent role in Hong Kong IPO transactions, with the market witnessing a rising participation of cornerstone investments in IPOs, both in terms of the size of investments and the number of investors.

Has the role of cornerstone investors shifted from boosting confidence in the quality of IPO issuers and helping to refine the price range at which the IPO would be launched, to distorting the price discovery process, hurting liquidity post-listing due to the regulatory post-listing six-month lock-up requirement and putting pressure on the stock when the expiry of the lock-up period approaches? Not so long ago, before the global financial crisis, cornerstone investors were mainly major international institutional and financial investors, sovereign wealth funds and high net worth tycoons.

These investors are often return- and value-focused. They would scrutinise the fundamentals of an issuer, and the questions and answers that typically followed would offer reassurance to retail investors about the credibility of the issuer and the IPO price. This kind of activity may improve the quality of prospectus disclosure and so indirectly help public investors to understand the issuer. With the sharp increase in cornerstone investments in recent years, the cornerstone club has a wider class of participants, featuring mainland corporates buying up large proportions of Chinese state-owned enterprises in their IPOs.

Critics have said that these new club members, the so-called friends and family investors, are not so profit- and value-driven but rather are invited to participate in an IPO to support the completion of the new listing at a price which may not otherwise be supported by natural market demand.

Cornerstones don't only affect the price of stock at listing. There was a time when well-known institutional investors would compete in the cornerstone selection process to try to get in on a hot deal early and get their guaranteed amount of stock. In return for this privilege, the cornerstone investor's shares were subject to a compulsory six-month non-disposal lock-up post-listing. This resulted in a large chunk of the public float being locked up post-listing, which affected the liquidity of the stock and increased the risk for mispricing, and a large overhang which might hit the market when the lock-up expired.

Data support a trend that issuers with significant Chinese cornerstone backing have not performed as well as those with support from international institutions or without cornerstone support. Some say this is due to a combination of factors, such as the lack of a real price discovery process, which may mean the IPO price does not reflect the genuine market value of the issuer, and the quality of the issuers which may not otherwise be listed without Chinese cornerstone backing.

Its Listing Committee first reported it was considering the impact of cornerstones on free float, shareholder base, price discovery and the share overhang in , and it has asked the HKEX to continue to monitor the situation. In , it asked the HKEX to conduct discussions with stakeholders to gain a better understanding of how cornerstones form part of an offering, and impact the price discovery process, in order to conclude whether any changes are necessary.

Linklaters counsel Terri Poon also participated in the drafting of this article. I n recent years, the Hong Kong market has seen strong cornerstone investment becoming the trademark of IPOs of PRC state-owned companies, especially in mega deals where up to 20 such investors have participated at one time.

Another distinguishing feature of the current Hong Kong IPO market is the demographic of the cornerstone investors. In the past, these were typically funds and investment companies from the international market. As of late, most of those that participated in mega size H-shares deals were mainland companies and often also state-owned.

In , a leading securities firm launched its much anticipated public offering for the first time, indicating in its prospectus that its shares would tentatively be listed by the end of However, the market was volatile and hit a low point at that time.

The marketing efforts during the international roadshows were unable to attract sufficient interest from foreign private equity funds to cover the international tranche offering and pricing was delayed indefinitely. After this unavailing attempt to market its shares in roadshows, the stated-owned, embarrassed applicant took matters in its own hands and turned to its fellow compatriots in the PRC to bridge the gap in its second attempt by inviting domestic investors to subscribe.

The Exchange has reviewed its current practice, the policy rationale of the restrictions, and published a new guidance letter GL , aligning, and in some cases relaxing, its current practice repealing GL and LD The Exchange has not removed the requirement to seek its consent pursuant to Rule In the new guidance letter, the Exchange explained that it will no longer regard the guaranteed allocation available to cornerstone investors as a barrier to connected clients or existing shareholders applying for a Rule The only requirement of the Exchange is that such investment be made on the same terms and conditions as other independent cornerstone investors — i.

These conditions are also applicable to holders of convertible instruments issued by the IPO applicant. The new guidance contains prescribed wording for confirmations to be given by various parties, some of which allow qualifications to be included and the relevant party giving the confirmations to rely on confirmations given by others. The Exchange believes there is a greater risk of actual or perceived preferential treatment in favour of shareholders with a larger percentage shareholding, as they will have greater influence over the decision of the IPO applicant, in particular if the shareholder is otherwise connected or has the right to appoint directors.

Connected client requirements: revisited In the past, the Exchange accepted that Qualified Connected Clients may be able to demonstrate that they do not receive any preferential treatment in the allocation process if certain confirmations are given and conditions are satisfied. These confirmations and conditions depended on whether the Qualified Connected Clients held securities on a non-discretionary or discretionary basis.

In the new guidance letter, the Exchange has maintained its requirement for confirmations, but the scope has been aligned and consolidated between both groups of Qualified Connected Clients. In particular, confirmations that no preferential treatment has been given will be required from each of the sponsor, the IPO applicant, the bookrunners, the connected distributor and the Qualified Connected Client itself. The only distinction between the two groups is that the Exchange highlights its heightened concerns over the risk of preferential treatment being given to discretionary Qualified Connected Clients by requiring that their connected distributors be excluded from the allocation process in so far as it relates to their discretionary Qualified Connected Clients.

This is less draconian than previous experiences of the Exchange prohibiting connected distributors from introducing their connected clients as potential investors, but is nevertheless onerous from a practical perspective. See the table at the end of this bulletin for a summary of the confirmations required. Close associates of PRC governmental bodies: requirements relaxed The Exchange has indicated a different approach for close associates of existing shareholders which are PRC governmental bodies.

In particular, the Exchange will grant consent to such close associates to participate as cornerstone investors or in the placing tranche without requiring confirmations as to 3 preferential treatment, provided that they: a are genuine investors who operate independently of the PRC governmental bodies; and b have no access to material non-public information regarding an IPO and no influence over the allocation process of the IPO.

We believe this new approach should ease the burden of close associates of Central Huijin to the extent they participate as cornerstone investors or in the placing tranche of IPOs. A summary of the conditions Parties to provide the relevant confirmations with Conditions 1. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors.

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Related documents. Shareholders in agreement concerning further course of action at.

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Deal teams should note that discounts may act as a drag on pricing for the IPO — investors through the book-building process may be reluctant to accept a higher valuation. Having cornerstone investors agree to a lock-up for a period provides price stability post-IPO and assists with marketing by underlining that the cornerstone investors are committed to the company. Recent cornerstone investments in London IPOs have been subject to a lock-up of days.

Disclosure of information needs to be carefully considered — there should be no disparity in the material information provided to cornerstone investors and the information available in the prospectus to other investors. Cornerstone investors may be provided with more detailed non-material information, for example access to copies of documents that are summarised in the prospectus.

However, if requests include additional information not intended to be included in the prospectus, the issuer should consider whether this is material information which should be disclosed to all investors. Following a relatively quiet first quarter in , the European IPO markets are showing signs of increased activity and we believe PE firms will continue to view public listings as an attractive option for portfolio companies.

If an IPO is on the cards, PE firms should consider engaging with potential cornerstone investors to help decrease execution risk and increase the prospects of a successful IPO and exit. Podcasts We explore the changing legal landscape in our range of podcasts. Videos Explore the legal landscape via our range of videos and webinar recordings. Topics Hub Keep up to speed on legal themes and developments through our curated collections of key content.

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Horizon Scanning. Our toolkits curate in-depth content on a particular legal theme or topic. Some of the products are offered on a subscription basis. Back Careers. IPO cornerstone investments and placing allocation. How would you like your page printed? The major points to note: Participation as a cornerstone investor: The Exchange will no longer regard the guaranteed allocation available to cornerstone investors as a barrier to connected clients or existing shareholders applying for a Rule There is now a roadmap for connected clients who hold securities on behalf of independent investors i.

Relaxation for close associates of PRC governmental bodies which are existing shareholders: The Exchange will now generally permit close associates of PRC governmental bodies which are existing shareholders to participate as cornerstone investors or in the placing tranche without requiring confirmations as to no preferential treatment. You will need to log in or register to view the content Log in Register Linklaters user?

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