Chinese city bank joins year-end share offering rush in Hong Kong

PUBLISHED : Monday, 23 November, 2015, 7:23pm
UPDATED : Monday, 23 November, 2015, 7:23pm

Bank of Jinzhou was the latest Chinese city-commercial bank to launch a Hong Kong initial public offering, following Bank of Qingdao, at a time when investors are on heightened alert for mounting bad debt at Chinese lenders.

The Liaoning-based bank launched a US$943 million Hong Kong IPO on Monday to bolster its balance sheet. The 1.32 billion shares in the initial public offering are being offered in an indicative range of HK$4.64 to HK$5.54 each, IFR reported. The shares represent 23.6 per cent of the bank's enlarged capital.

The offering comes on the heels of one by Bank of Qingdao’s, which was looking to sell 990 million shares at between HK$4.75 and HK$5.21 for a total of up to HK$4.32 billion.

Another city commercial lender, Bank of Zhengzhou, may also seek to list before the end of the year.

As China’s economic growth slows to the lowest rate in more than a decade, concerns have risen over the asset quality of banks, particularly small ones with exposure to local property developers and manufacturers.

READ MORE: Bank of Qingdao IPO selling exposure to silk road and local industry

“We don’t have that much appetite for small banks right now given how the economy has performed,” said Louis Tse Ming-kwong, director at VC Brokerage. “So far I haven’t got any inquiries on them.”

As the economy cools, banks’ balance sheets have come under pressure. Among China’s biggest banks, Agricultural Bank of China reported that its non-performing loan (NPL) ratio broke the 2 per cent mark by the end September, leading the sector in bad debt.

Bank of Qingdao’s NPL ratio was 1.19 per cent at the end of June, below the sector average. However, like its peers, its biggest customers are state-owned builders and manufacturing companies, sectors at the forefront of China’s economic downshift.

“From the investors’ perspective, there’s definitely concern over the balance sheets of the banks,” said Edward Au, co-leader of Deloitte’s national public offering group in Hong Kong. “On the other hand, they are looking to see valuations.”

The pricing for the banks has come down since the last city lender listed about a year ago. Bank of Qingdao’s target for the IPO was notably smaller than Shengjing Bank, which priced at HK$7.56 for an offer of HK10.4 billion in December last year.

READ MORE: China’s addiction to bank lending just got worse

Au noted that the banks had joined the end-of-year rush to list before they are required to update their financial information, leading to less aggressive pricing.

Bank of Jinzhou applied for a listing in Hong Kong in April but the application stalled in June after the stock exchange questioned the bank’s exposure to Hanergy, IFR previously reported, citing people close to the situation.

It had tried to list in Shanghai in 2011 but gave up on the plan after waiting for approval for almost three years, according to its Hong Kong listing documents.

The lender makes no mention of Hanergy Group, the parent of troubled solar equipment maker Hanergy Thin Film Power Group, in its filings with the Hong Kong stock exchange, instead disclosing it had exposure “to one particular ultimate group borrower, who was subject to negative media reports on its business and financial position”.

Bank of Jinzhou also said the borrower has a unit listed in Hong Kong that had trading of its shares suspended and has been under investigation by the Securities and Futures Commission since May 2015.