HONG KONG (Reuters) - Haitong Securities Co Ltd's <6837.HK> (>> HAITONG Securities Company Limited) $1.7 billion Hong Kong share offering took center stage in Asia Pacific equity capital markets on Friday, but it also highlighted the risks from deals partly financed by underwriters as competition among banks grows for new listings, Thomson Reuters publication IFR reported.

Haitong, China's second-biggest brokerage by assets, received pledges from 11 cornerstone investors for about one-third of the stock on offer. Banks financed a portion of cornerstone orders totaling $330 million.

Pan-Asia private equity firm PAG and U.S. asset manager DE Shaw & Co Ltd made the biggest commitments. Other investors included Japan's SBI Holdings (>> SBI Holdings Inc), Taiwanese brokerage KGI Securities (>> KGI Securities Co. Ltd.), Dah Sing Bank (>> Dah Sing Banking Gro) and The Oman Fund.

The deal also got about $500 million in pledges from anchor investors, one source said Wednesday.

PAG, headed by former TPG Capital dealmaker Weijian Shan, agreed to buy $300 million worth of Haitong shares, funding half of the amount through a mid-term loan arranged by ICBC International Securities Ltd, according to the offering's prospectus. KGI had half of its $30 million pledge financed through a one-year loan from HSBC (>> HSBC Holdings plc)<0005.HK>.

Extending loans to cornerstones is not new, but disclosing them is, an indication that a push for greater transparency in Hong Kong is bearing fruit, said IFR in its report on Saturday.

The loans from HSBC and ICBC International also highlight the extent to which banks are willing to go to bolster demand for offerings, after a 37 percent plunge in equity capital markets activity in the first quarter of 2012.

"To us, it's a normal and a win-win business. We can lend money at normal commercial rates, while, at the same time, we can help generate demand for the IPOs," a banker at a bulge-bracket bank told IFR.

Cornerstones back many Asian listings, committing to buy large, guaranteed stakes and agreeing to a lock-up period of 6-12 months during which they will not sell their shares. Anchor investors have fewer restrictions on when they can sell the stock.

As part of the agreement with the banks, KGI and PAG pledged their shares in Haitong as collateral for the loans. ICBC International agreed to not exercise its rights over the shares until the lock-up expires, while HSBC can seize the shares at any time if KGI defaults on the loan.

The risk with some of those loans is that if covenants are breached, lenders could take the shares and dump them in the market during the lock-up period, IFR said, pressuring stock prices.

CORNERSTONE HISTORY

Orders from cornerstone and anchor investors help underwriters get an early indication of demand for deals and become particularly important in times of slow market activity.

Investment by cornerstones in Hong Kong offerings has been around for several years. The move was originally aimed at boosting the credibility of companies tapping IPO markets in the early 2000s, with a seal of approval from household names including billionaire tycoons Li Ka Shing, Lee Shau Kee and Cheng Yu-teng, who poured millions into new listings.

The tycoons later gave way to sovereign wealth funds such as Temasek Holdings , China Investment Corp and the Kuwait Investment Authority and large mutual funds. More recently private equity firms such as PAG, KKR (>> KKR & Co. L.P.) and Sequoia Capital have taken a greater role as cornerstone investors.

Haitong's disclosure of the loans, which helped prop demand for the deal, was a welcome move, IFR added.

"The regulators are happy to see more such disclosure as this kind of information is useful for retail investors when they consider whether or not to buy into an IPO," a source close to the Stock Exchange of Hong Kong told IFR.

(Additional reporting and writing by Elzio Barreto; Editing by Sanjeev Miglani)

By Fiona Lau