Laying the foundations before deals hit the street.
When Swiss mining giant Glencore signalled its intention to launch the largest initial public offering in UK corporate history amid a volatile market and with a limited record of corporate governance, one could have been forgiven for assuming the deal would struggle to get off the ground.
But just a month after launching the IPO, the company dispelled any such fears, comfortably raising $10bn in its debut on May 24 in London and Hong Kong with a book that was three times covered.
Its secret lay in securing a group of cornerstone investors, including BlackRock, sovereign wealth funds, asset managers and individuals, which between them snapped up about 31% of the shares on sale before the roadshow had even started.
Such investors publicly state their support for a newly listing company in exchange for an agreed allocation up front – rather than standing in line with the rest of their peers – but have to lock up their money for up to a year, no matter what is happening in the wider market.
The idea of the cornerstone investor originated in Asia and has taken European financial markets by storm. It could not have come at a better time.
Amid one of the most volatile markets in recent years, several large IPOs have managed to list on European and Asian exchanges thanks to the backing of several large investors that had already signed up before word of the company’s listing had hit the street.
Ben Iversen, co-head of equity capital markets for Europe, the Middle East and Africa at Nomura, said: “The practice has been widely used in Asian markets for some time and serves two primary purposes. With sizeable offers it takes off a little of the pressure of covering the book and creates competition between other investors.
“Secondly, if the identity of the cornerstone investors is made known as we are marketing the deal, it can add credibility. If a large, well-known and respected investor has bought in early it validates both the equity case and the price range of the deal.”
