HONG KONG (Reuters Breakingviews) - There’s a new manager for the logistics of a warehouse operator’s stock sale. ESR Cayman has revived its initial public offering plans in Hong Kong after aborting them in June. This time around Morgan Stanley will lead the effort instead of Deutsche Bank and CLSA. It’s a sign of things to come in an industry undergoing fresh upheaval.
The pitch for ESR, backed by private equity firm Warburg Pincus, is a fairly straightforward one. E-commerce is booming in Asia, and storage and distribution centres catering to online retailers such as JD.com and Alibaba are in short supply. A roughly $6.5 billion valuation at the midpoint of the price range proved to be a hard sell, however, especially just as protests broke out in Hong Kong and spooked investors.
ESR’s owners are feeling confident, though. They have increased the size of the IPO, seeking to raise $1.4 billion at the same valuation, after bringing in Canada’s OMERS as a cornerstone to underpin the deal. Also changed is the roster of banks involved, suggesting they are being blamed for the summer stumble. While Deutsche and CLSA are still sponsoring the offering, previously uninvolved Morgan Stanley is running the show, as first reported by Refinitiv publication IFR.
Whatever the reasons behind the shakeup, they reflect a new reality. Deutsche recently cut most of its Asia-Pacific equity capital markets team amid a wider restructuring. The embattled German bank reckons it can hold its own in this regional business with less, but that sounds like wishful thinking given the cutthroat competition. Likewise, CLSA has suffered a slew of senior departures amid a culture clash with Chinese parent company CITIC. Losses in the research division will inevitably hurt IPO pitches.
Morgan Stanley, meanwhile, is the highest-ranked Western bank for Hong Kong IPOs so far this year, according to research outfit Dealogic. Deutsche is eighth, while CITIC sits at 21st, its lowest position in at least a decade. Given the changing fortunes of investment banks, it doesn’t take a logistics specialist to see that fees are going to be redistributed.
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