Smaller deals to drive mainland firms' IPO push
Financial sector at the forefront of key equity fund raisings this year
The frenzied pace of equity fund raising by mainland companies in Hong Kong is expected to continue this year although the total value may drop off last year's record high.
Mainland companies raised a record US$37.9 billion last year, thanks to the US$16.8 billion H-share offering by Industrial and Commercial Bank of China. Excluding that deal, Chinese firms raised US$21.1 billion, just above the previous record of US$20.9 billion in 2005, according to Dealogic.
This year, the financial sector will be front and centre as mainland banks and insurance firms seek funds to expand and fend off the growing challenge of foreign competition in the country.
While that has been a dominant theme since Bank of Communications became the first mainland lender to sell shares in the international market 18 months ago, this year's crop of initial public offerings will include the first from China's smaller city commercial banks.
First off the bat is likely to be a US$500 million to US$750 million offering from Bank of Beijing, followed by a US$500 million sale from Bank of Shanghai. Such sales are expected to attract strong interest from investors who expect the banking system to benefit from rising mainland incomes.
'The medium and small-scale banks are more flexible compared with the state-owned banks and their lending is primarily profit-oriented,' said Kenny Tang Sing-hing, an associate director at Tung Tai Securities.
State-directed lending piled up bad loans at larger peers, such as ICBC, Bank of China and China Construction Bank. All three banks received capital injections from the central government to shore up their balance sheets before their initial public offerings.
As the fourth-largest lender, Agricultural Bank of China is unlikely to launch an offering in the near future due to poor finances. Larger bank offerings could come from regional lenders such as Shanghai Pudong Development Bank, which plans to raise at least US$1.3 billion in Hong Kong.
A US$1.5 billion share sale from China Everbright Bank took a step forward last month when Beijing approved a multimillion-dollar bailout. China Citic Bank will raise up to US$2 billion after selling a 5 per cent stake to Banco Bilbao Vizcaya Argentaria, Spain's second-largest lender, for Euro500 million (HK$5.13 billion).
From the insurance sector comes a US$1 billion offering from China Pacific Insurance, the mainland's fourth-largest insurer. China Reinsurance, the largest Chinese reinsurer, is undergoing restructuring and plans a share sale in the mainland and Hong Kong.
'For these companies to get a listing and beef up capital is the best answer to growing foreign competition,' said Louis Wong Wai-kit, a director at Phillip Securities.
Investors are expected to subscribe to such offering in the hope that rising premium growth translates into greater profits.
China's Southern Power Grid is preparing a restructuring and hopes to raise up to US$3 billion from a share sale next year. Proceeds will be used to update antiquated power infrastructure that leaks large amounts of electricity.
'Institutional investors are interested in the dominant players in every mainland sector but the [share price] performance may not be as good as banking stocks because utilities are not high-growth stocks and power tariffs in China are regulated,' Mr Tang said.
Another hefty offering comes from the consumer sector from Belle Holdings, a footwear retailer that plans to raise as much as US$1 billion in the first quarter.
A series of smaller deals are also expected. In the industrial sector, China Heavy Duty Truck will raise at least US$400 million from a share sale while in the food and beverage sector, Huiyuan Juice Holdings will sell US$250 million worth of shares.
Consumer-related deals include a US$200 million offering in the third quarter by Anta (China), a foot and sportswear brand, and a similar offer from Intime Department Store in the second quarter.
The technology sector will see printed circuit board maker Meadville Group raise US$200 million.
Garment maker Pacific Textiles plans to raise US$200 million and medicine supplier Wuyi Pharmaceutical will sell US$100 million worth of shares. Toll-road operator Shanxi Expressway aims to raise US$400 million.
'China's economy is booming and a lot of sectors are doing well,' Mr Wong said. 'That promise appeals to investors looking at earnings prospects.'
Next year, mainland property developers including Country Garden, Hengda Real Estate and Sino-Ocean Real Estate could raise at least a combined US$2 billion from initial public offerings and more deals are planned. The year-end total is expected to exceed the US$1.6 billion in equity three developers raised last year. Their shares are up an average 71 per cent.
Developers are seeking funds to expand in the hope of escaping the negative effects of China's austerity measures to cool rising property prices that are expected to harm smaller players the worst.
COMING TO MARKET
Expected fund-raising target (US$)
Bank of Beijing 500m-750m
Bank of Shanghai 500m
Shanghai Pudong Development Bank 1.3b
China Everbright Bank 1.5b
China Citic Bank 2b
China Pacific Insurance 1b
Southern Power Grid 3b
Belle Holdings 1b
Huiyuan Juice Holdings 250m
Anta (China) 200m
Wuyi Pharmaceutical 100m
China Heavy Duty Truck 400m
Shanxi Expressway 400m
Hengda Real Estate 1.3b
Country Garden 600m
Sino-Ocean Real Estate Development 400m