HONG KONG: Shares of Chongqing Rural Commercial Bank Co Ltd fizzled on their trading debut on Thursday, Dec 16 after a $1.5 billion IPO, reflecting investor caution over the health of smaller Chinese lenders.
The debut marks the beginning of an expected steady stream of similar listings by rural and commercial banks in Shanghai and Hong Kong, as they look to the markets to bolster their balance sheets and raise capital for expansion.
The regional banks offer investors a window to the untapped potential of China's inland areas. But their close links to debt-laden local governments also make them a riskier bet compared with larger national banks that Beijing considers too big to fail.
"Investors in Hong Kong are generally still keen on investing in Chinese banks, but it really depends on government policy and how much lending will be controlled, which is not clear now," said Harris Fraser fund manager Andy Lan, who manages about HK$100 million. The fund does not hold shares in Chongqing Rural.
By 0400 GMT, shares of China's first rural lender to go public were down 2.5 percent at HK$5.12 from its offer price of HK$5.25, after rising to as much as HK$5.49 in early trade. The benchmark Hang Seng Index was down 0.3 percent.
Chongqing Rural's IPO provided investors, keen to buy into China's banking sector, with a new proposition following the listings of all the nation's major lenders in recent years.
Chongqing Rural's IPO is the world's third-largest bank public offering this year after Agricultural Bank of China's $22 billion offering and China Everbright's $3.2 billion, according to Thomson Reuters data.
Hong Kong has been a hotbed for IPOs this year, with about $50 billion raised through IPOs. The bourse accounts for about a fifth of global IPOs this year.
Chongqing Rural's shares began trading to a round of applause from a crowd gathered for the debut at the Hong Kong stock exchange. The ceremony was attended by executives dressed in suits and ties, in contrast to their more rural roots in China's interior.
Linus Yip, chief strategist at First Shanghai Securities, said the bank should be valued comparably with top Chinese lender AgBank , which also focuses on rural areas and went public this year in a then-record $22.1 billion IPO.
AgBank's Hong Kong-listed shares have risen more than 40 percent from their IPO price since their debut in July.
"It is an interesting issue to many investment funds as they look for absolute returns," Yip said. "The theme itself is promising because of the strong growth prospects in rural areas."
Chongqing Rural, which has attracted investors such as the life insurance unit of Taiwan's Fubon Financial Holding Co Ltd and Abu Dhabi-backed Nexus Capital Investing, priced its offering to sell about 2 billion shares in the middle of an indicative range. [ID:nTOE6B802E]
Morgan Stanley and Nomura Holdings Inc were joint global coordinators and joint bookrunners for the IPO.
''
MORE COMING, BUT SLOWLY
Like its larger national peers, an extraordinary one-off clean-up of its books helped prepare Chongqing Rural for its offering, having cleaned up its non-performing loan portfolio from more than 12 percent in 2007 to below 3 percent in June this year.
More similar offerings are likely to follow, but are likely to come at a measured pace as China's banking regulator seeks to control the volume of new listings, said a banker who worked on the Chongqing Rural deal.
"We don't expect a wave of rural banks going public next year, maybe a few symbolic ones," said the banker, who declined to be named as she was not authorised to speak to the media.
Chongqing Rural's net profit this year is expected to rise at least 51 percent to 2.85 billion yuan ($428 million), and it boasts a healthy net income margin of about 3 percent, ahead of the major domestic banks. However, it has a non-performing loan (NPL) ratio of about 3 percent, far higher than the bigger names. (US$1=HK$7.75) - Reuters
The debut marks the beginning of an expected steady stream of similar listings by rural and commercial banks in Shanghai and Hong Kong, as they look to the markets to bolster their balance sheets and raise capital for expansion.
The regional banks offer investors a window to the untapped potential of China's inland areas. But their close links to debt-laden local governments also make them a riskier bet compared with larger national banks that Beijing considers too big to fail.
"Investors in Hong Kong are generally still keen on investing in Chinese banks, but it really depends on government policy and how much lending will be controlled, which is not clear now," said Harris Fraser fund manager Andy Lan, who manages about HK$100 million. The fund does not hold shares in Chongqing Rural.
By 0400 GMT, shares of China's first rural lender to go public were down 2.5 percent at HK$5.12 from its offer price of HK$5.25, after rising to as much as HK$5.49 in early trade. The benchmark Hang Seng Index was down 0.3 percent.
Chongqing Rural's IPO provided investors, keen to buy into China's banking sector, with a new proposition following the listings of all the nation's major lenders in recent years.
Chongqing Rural's IPO is the world's third-largest bank public offering this year after Agricultural Bank of China's $22 billion offering and China Everbright's $3.2 billion, according to Thomson Reuters data.
Hong Kong has been a hotbed for IPOs this year, with about $50 billion raised through IPOs. The bourse accounts for about a fifth of global IPOs this year.
Chongqing Rural's shares began trading to a round of applause from a crowd gathered for the debut at the Hong Kong stock exchange. The ceremony was attended by executives dressed in suits and ties, in contrast to their more rural roots in China's interior.
Linus Yip, chief strategist at First Shanghai Securities, said the bank should be valued comparably with top Chinese lender AgBank , which also focuses on rural areas and went public this year in a then-record $22.1 billion IPO.
AgBank's Hong Kong-listed shares have risen more than 40 percent from their IPO price since their debut in July.
"It is an interesting issue to many investment funds as they look for absolute returns," Yip said. "The theme itself is promising because of the strong growth prospects in rural areas."
Chongqing Rural, which has attracted investors such as the life insurance unit of Taiwan's Fubon Financial Holding Co Ltd and Abu Dhabi-backed Nexus Capital Investing, priced its offering to sell about 2 billion shares in the middle of an indicative range. [ID:nTOE6B802E]
Morgan Stanley and Nomura Holdings Inc were joint global coordinators and joint bookrunners for the IPO.
''
MORE COMING, BUT SLOWLY
Like its larger national peers, an extraordinary one-off clean-up of its books helped prepare Chongqing Rural for its offering, having cleaned up its non-performing loan portfolio from more than 12 percent in 2007 to below 3 percent in June this year.
More similar offerings are likely to follow, but are likely to come at a measured pace as China's banking regulator seeks to control the volume of new listings, said a banker who worked on the Chongqing Rural deal.
"We don't expect a wave of rural banks going public next year, maybe a few symbolic ones," said the banker, who declined to be named as she was not authorised to speak to the media.
Chongqing Rural's net profit this year is expected to rise at least 51 percent to 2.85 billion yuan ($428 million), and it boasts a healthy net income margin of about 3 percent, ahead of the major domestic banks. However, it has a non-performing loan (NPL) ratio of about 3 percent, far higher than the bigger names. (US$1=HK$7.75) - Reuters
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