Cornerstone investment has become an important part in the IPO process, especially in Asia markets. Cornerstone investors are institutional investors who commit to subscribing for a certain number of shares at the IPO offer price before the listing. They serve multiple key roles in IPOs. First, cornerstone investment helps stabilize the IPO price. By committing a certain amount of capital upfront, cornerstone investors provide confidence and pricing reference for other investors. Second, having renowned institutional investors as cornerstone investors raises the profile of the IPO and attracts more interest. Third, cornerstone investment allows issuers to raise funds more efficiently. However, cornerstone investors are subject to lock-up periods while anchor investors are not. Overall, identifying the right cornerstone investors is vital for a successful IPO.
Cornerstone investors provide confidence and pricing reference for IPOs
Cornerstone investors are institutional investors who make a commitment to subscribe for a certain number of shares at the final IPO price, before the offering is made to other investors. This upfront commitment serves as a vote of confidence in the IPO issuer and provides an important pricing reference point for the bookbuilding process. For example, if a cornerstone investor is willing to invest at the mid-point of the marketed price range, it sends a positive signal to the market about the appropriate valuation. Cornerstone investment helps stabilize pricing expectations and builds momentum during the bookbuilding process.
Cornerstone investors raise the profile of IPOs and attract investor interest
Having renowned institutional investors like sovereign wealth funds, pension funds, mutual funds or hedge funds serve as cornerstone investors raises the profile of the IPO and provides pedigree. Their presence on the cap table lends credibility to the issuer and could pique the interest of other sophisticated institutional investors. Moreover, cornerstone investment amounts are usually disclosed in the IPO prospectus, which draws attention and marketing value. Therefore, securing cornerstone investment from investors with strong brand names can be helpful for drumming up market interest.
Cornerstone investment allows issuers to raise funds more efficiently
For issuers, obtaining cornerstone investment provides greater certainty over achieving targeted IPO proceeds, compared to relying purely on bookbuilding. This upfront committed capital reduces the risk of under-subscription. It allows issuers and underwriters to focus marketing efforts on bolstering demand from other institutional and retail investors during the IPO roadshow. With secured cornerstone demand, issuers enjoy greater funding flexibility to upsize the deal if market conditions turn out to be favorable.
Cornerstone investors differ from anchor investors in being subject to lock-up periods
While cornerstone investors and anchor investors both provide important demand during the IPO process, a key difference is cornerstone investors are subject to a lock-up period post-listing. This serves to align their interests with long-term value creation. Typical lock-up periods range from 6 months to 1 year. On the other hand, anchor investors do not have any stock disposal restrictions. Therefore, securing anchor demand from investors with strong long-term conviction in the company is ideal.
Selecting appropriate cornerstone investors is vital for a successful IPO
The cornerstone investment process involves extensive positioning and relationship-building by the issuer and underwriters. They look for investors that are reputable institutions matching the issuer’s profile and growth story. The participation of certain cornerstone investors could move the needle in attracting other top-tier institutional demand. Hence, careful selection of cornerstone investors with stature, credibility and marketing value is key to building a strong IPO order book.
In summary, cornerstone investment plays indispensable functions in IPOs, especially in Asia markets. Cornerstone investors provide pivotal early capital, validate issuer valuations, raise profile and attract investor interest during the equity capital raising process. Their lock-up demonstrates long-term commitment. Identifying the right cornerstone investors to partner with is vital for issuers and underwriters in order to orchestrate a successful IPO.