THE government plans to use cornerstone investors to help its overseas-listed tech giants such as Alibaba and Xiaomi to sell shares at home, on worries the size of the deals could overwhelm mainland markets, three sources said.

This departure from norm by China, where equity offerings are typically sold without such strategic investors, comes at a time when the country is looking to tempt its offshore-listed tech behemoths into secondary listings using the planned Chinese depositary receipts (CDRs).

China could also rip up its unwritten rules on pricing caps to make way for these blockbuster deals, said the sources who have direct knowledge of the matter, adding that Alibaba and Xiaomi were furthest along the CDR planning path.

Selling CDRs equivalent to about 1 percent of Alibaba’s market capitalization would mean raising US$5 billion in Shanghai or Shenzhen, marking what would be the country’s largest share sale on the open market since 2009, according to Thomson Reuters data.

While such deals would allow mainland investors to benefit from any further share price rally, the securities regulator is worried they “will take up too much liquidity in the secondary market, which may lead to a drop in the main indices,” a sources said.

Cornerstones would help ease such concerns of liquidity drain as they take a large allocation of shares in return for their holdings being locked up for a set period.

CDR cornerstones will likely be subject to a lockup period of at least one year, the source said.

Cornerstones are viewed as a mixed blessing in other markets. Once a means of using marquee-name investors to encourage others to sign up, they have in recent years been increasingly used to support large deals that might otherwise have struggled to generate enough interest.

Regulators are currently testing a version of the practice with the US$4.26 billion Shanghai IPO of Foxconn Industrial Internet, a unit of the world’s largest contract manufacturer Foxconn.(SD-Agencies)