Mainland lender lifts cap on share allocations to 12 backers due to strong demand from tycoons
Bank of China has earmarked US$1.92 billion worth of shares for 12 key investors, mainly local tycoons, in its estimated US$8 billion offering, sources say.
The mainland's second-largest lender has verbally agreed to allocate to each investor US$160 million worth of shares with a 12-month lock-up period. The agreements are expected to be signed this week.
Sources said the lender originally planned to cap the amount of shares sold to key investors to 20 per cent, but overwhelming demand from tycoons - who are believed to include Henderson Land Development chairman Lee Shau-kee and New World Development chairman Cheng Yu-tung - had pushed it to remove the limit.
BOC, which began pre-marketing its float yesterday, intends to sell its shares at a discount to its Hong Kong-listed mainland peers such as Bank of Communications and China Construction Bank Corp, says a report by BOC International. BOCI, Goldman Sachs and UBS are the bookrunners.
In the report, BOCI said the bank might float its shares at two to 2.3 times their estimated book value this year, a discount to Construction Bank's 2.34 times and Bocom's 2.47 times.
Meanwhile, a report by UBS says that, assuming a return on equity ratio of 14.9 to 15.6 per cent this year, BOC will be offered at 2.08 to 2.4 times its book value.
Sources said the lender tentatively planned to offer 21.5 billion H shares, translating to a price range of $2.50 to $3 per share, but no formal offer price had been set so far.
A fund manager said if BOC sold its shares at two to 2.4 times book value, the float would be very attractive.
'BOC will be a big market-capitalisation stock and you need to have it in your portfolio, even if you have concerns about the asset quality,' the fund manager said.
BOC would start its roadshow on May 11 while the retail offering would run from May 18 to 23, ahead of the stock's trading debut on June 1, sources said.
BOC's earnings were expected to rise 43.08 per cent to 37.08 billion yuan, the BOCI report said, adding that the bank's return on equity would improve to 13.5 per cent this year, although still lagging Construction Bank's 15.7 per cent.
BOC, which has more than 600 offices in 27 countries, saw its non-performing loan ratio fall to 4.6 per cent last year and its special-mention loans stood at 12.7 per cent.
In a report, Goldman Sachs said the key risks of BOC included a still high gross new non-performing loan formation rate - at 2.3 per cent last year - and further cases of internal control irregularities.
As China's largest foreign exchange bank, BOC was more exposed to yuan appreciation, UBS said. The investment bank's forecasts assume an exchange rate of 7.50 yuan per US dollar by the end of next year, with BOC's net foreign exchange loss at 7 per cent of profit last year and 4 per cent for next year.
Concerning the potential competition between BOC and its Hong Kong-listed subsidiary, BOC Hong Kong (Holdings), BOCI believes BOCHK would concentrate on its Hong Kong clients and cross-border banking business while BOC would focus primarily on its purely domestic clients.
BOCHK accounted for 24 per cent of BOC's total equity and 42.1 per cent of its pretax profit last year, the Goldman report said.