China Everbright IPO may face rough sailing
China Everbright Bank might face a tough share sale in Hong Kong as the banking sector has underperformed the overall equity market over the past few weeks.
The Shanghai-listed medium-sized bank received approval from the China Banking Regulatory Commission last month to launch a public offering in Hong Kong.
Yesterday the Hong Kong Economic Journal reported the bank aimed to raise US$7 billion, with the target listing date being July 11.
Shares of mainland banks have dropped this month as investors became wary of the sector, which is expected to cool because of Beijing's credit tightening measures.
The People's Bank of China has raised bank reserve ratios eight times and interest rates four times since October last year.
According to a report by HSBC, each 50 basis point increase in interest rates by the central bank can freeze up more than 370 billion yuan (HK$444 billion) in the banking system, limiting banks' capability to lend.
'Investors are generally interested in the banking sector,' said Kenny Tang Sing-hing, a general manager at AMTD Financial Planning.
'But they'll be asking for low valuations now because the sector has underperformed.'
Hong Kong-listed medium-sized mainland banks such as China Mingsheng Banking Corp and Bank of Communications have fallen over the past month, even underperforming the Hang Seng Index's meagre return of 0.64 per cent.
Mingsheng has lost 1.21 per cent, and Bank of Communications dropped 1.58 per cent.
The larger state-owned banks, which are expected to be the worst hit, have also fallen as a result of the weak hopes for their loan growth. Shares of Industrial and Commercial Bank of China have dropped 0.76 per cent while China Construction Bank has remained flat.
But Castor Pang, head of research at Core Pacific-Yamaichi, believes mid-sized mainland banks have more room to grow their businesses compared with state-owned banks, which are more restricted by central bank policies.
China Everbright is among the banks that have announced plans to raise funds to boost their capital reserve ratios.
Amount of funds, in yuan, in the banking system that can freeze up every time the central bank raises interest rates by 50 basis points