Bank of China

BOC prices A shares at the lower end

PUBLISHED : Thursday, 22 June, 2006, 12:00am
UPDATED : Thursday, 22 June, 2006, 12:00am

China's second-largest lender aims to raise 20 billion yuan in the country's biggest initial public offering

Bank of China, the country's second-largest lender, has priced its A shares at 3.08 yuan each - at the lower end of the indicative price range - in the largest new share offering on the mainland, sources say.

As the bank plans to raise 20 billion yuan, the price means it will sell 6.49 billion A shares. An official announcement of the pricing information is scheduled for today.

'Given BOC just recently sold H shares [in Hong Kong], the A-share offering was priced at a slight premium on the H-share [offer] price,' a source said.

The final price, from a range of between 3.05 and 3.15 yuan, represents 2.85 times BOC's book value at the end of last year and 22 times last year's earnings per share, according to international accounting standards.

BOC attracted a record of more than 120 billion yuan worth of orders from institutional investors in the offering, fund managers said yesterday. That would mean an oversubscription rate of about 19 times as the bank intends to raise about 6.4 billion yuan from institutional investors through the sale of 32 per cent of its mainland shares.

Analysts estimate total investor interest, including retail investors, could surpass 600 billion yuan.

'Thirty times oversubscription is probably a conservative estimate for total institutional and retail interest,' BNP Paribas Peregrine banking analyst Isaac Meng said.

By comparison, the institutional tranche of BOC's global share sale in Hong Kong was at least 20 times oversubscribed. The bank raised US$11.2 billion in that offering.

The H shares closed unchanged at $3.40 yesterday, compared with their listing price of $2.95.

'I don't expect they will price [the A shares] at the top end, more likely it will be fixed in the middle of the range,' said Charlie Chen, a fund manager at Haitong Fortis Asset Management.

BOC shares would begin trading on July 5 on the Shanghai exchange and were expected to rise at least 10 per cent on their first day to correspond with the H-share price, analysts said.

'Historically, Chinese IPOs have been priced below their fair value and IPO subscription is a low-risk investment for institutions,' Mr Meng said.

Meanwhile, Datong Coal announced it would start trading on the Shanghai market tomorrow, the first company to do so since the lifting of a one-year ban on new stock sales ended last month.

China's No2 coal producer said yesterday it raised 1.89 billion yuan by selling its 280 million shares at 6.76 yuan each, at the top of its proposed range of six to 6.76 yuan.

Shares in CAMC Engineering, China's first initial public offering in a year, fell their 10 per cent daily limit for the second day yesterday to 25.89 yuan, after having more than quadrupled in Monday's debut on the Shenzhen market.

China including Hong Kong could take the title of the biggest IPO market in the world this year after it came in second last year. A report by Ernst & Young showed Chinese firms raised US$24.3 billion last year, compared with US$33.1 billion in the US.