Big IPO, small splash: China bank PSBC fails to make waves after $7.4 bln HK debut

By: | Published: September 28, 2016 3:52 PM

Postal Savings Bank of China (PSBC) made a flat debut in Hong Kong as concern over the health of China's banking sector cast a shadow over the sprawling lender's $7.4 billion initial public offering, the world's biggest in two years.

Postal Savings Bank of China (PSBC) made a flat debut in Hong Kong as concern over the health of China's banking sector cast a shadow over the sprawling lender's .4 billion initial public offering, the world's biggest in two years.(Reuters)Postal Savings Bank of China (PSBC) made a flat debut in Hong Kong as concern over the health of China’s banking sector cast a shadow over the sprawling lender’s .4 billion initial public offering, the world’s biggest in two years.(Reuters)

Postal Savings Bank of China (PSBC) made a flat debut in Hong Kong as concern over the health of China’s banking sector cast a shadow over the sprawling lender’s $7.4 billion initial public offering, the world’s biggest in two years. Even though the offer was priced near the lower end of an indicative range, PSBC shares closed just a fraction above the HK$4.76 IPO price on Wednesday at HK$4.77. The benchmark Hang Seng index ended 0.2 percent higher.
The lukewarm start for the last of China’s big banks to go public comes as investors keep a weather eye on bad debt piling up at Chinese banks. Retail demand for the IPO – a key metric for success in Hong Kong – was modest, with fund managers saying the deal carried a higher valuation than PSBC’s peers and three-quarters of shares pre-sold to “cornerstone” investors, mainly other Chinese state-owned firms.

“The average valuation of banking stocks is relatively low nowadays due to concerns over China’s economic slowdown and mounting bad debts,” said Danny Bao, Chief Investment Officer at HJY Capital Advisors (HK) Ltd.

“Many Chinese banks are trading at discounts to their book,” said Bao. “Why would international investors buy the shares of this IPO?”

The deal’s timing also counted against it, some fund managers said: some investors are keeping their powder dry for what bankers estimate will be nearly $7 billion of IPOs likely to hit the market before November, when economic uncertainties triggered by the U.S. presidential election bring a lull.

The PSBC listing marks the end of a wave that started more than a decade ago, with IPOs by China Construction Bank Corp (CCB) and Bank of Communications Co Ltd (BoCom) .

With a market capitalisation of about $50 billion, PSBC ranks far behind China’s “Big Four” banks, but outstrips international peers like Dutch lender ING Groep and Japan’s Mizuho Financial Group Inc.

At a listing ceremony in Hong Kong, the chairman of PSBC said the Beijing-headquartered lender will continue to position itself as a large Chinese retail bank, serving the country’s small and medium enterprises as well as rural and low-income customers.

The listing will “force the bank to improve corporate governance and measure itself by international standards,” said PSBC Chairman Li Guohua. The bank plans to use the proceeds to bolster its balance sheet to “support the ongoing growth of its business”, according to its prospectus.

LOW RETAIL INTEREST

PSBC’s deal was the world’s biggest IPO since Chinese e-commerce giant Alibaba Group Holding Ltd’s $25 billion New York listing in 2014, and fee-hungry investment banks had counted on the deal to boost revenue amid a slump in new listings in the Asia-Pacific region.

The 26 banks handling PSBC’s offering stand to jointly earn up to $118.4 million in fees, according to the PSBC prospectus.

The portion of the offer set aside for retail investors was oversubscribed just 2.6 times, PSBC said in a filing on Tuesday, a comparatively low number. The institutional tranche was well oversubscribed, the bank said.

The lender had counted on its extensive network of more than 40,000 branches across China and a low level of non-performing loans to attract investors.

But many fund managers saw the deal as too pricey: PSBC’s marketing range valued the bank at a price-to-book ratio for 2016 of 0.94 to 1.02 times, far higher than the average of 0.76 for Hong Kong-listed lenders.

At a news conference during the listing ceremony, Hong Kong Exchanges & Clearing Ltd’s (HKEx) Chief Executive Charles Li downplayed concerns that the dominance of Chinese players among cornerstone investors might undermine the city’s capital markets.

“Cornerstone investors used to be dominated by foreign companies and now are mainly Chinese. But that’s decided by the market itself,” said Li.

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