More Hong Kong-listed Chinese city commercial banks expected to seek dual listing at home

Hungry for capital, at least nine regional lenders are believed to be poised for an A-share listing

PUBLISHED : Sunday, 28 August, 2016, 4:03pm
UPDATED : Sunday, 28 August, 2016, 10:31pm

At least nine Hong Kong-listed mainland city commercial banks are now seeking dual-listing approvals for their shares on the Shanghai or Shenzhen bourses, as the best way of raising much-needed capital.

The growing list of smaller regional lenders includes Bank of Qingdao, Chongqing Rural Commercial Bank and Bank of Jinzhou, and most say their shareholders have already approved the A-share listing plans.

The appetite for a mainland listing has increased after China’s third biggest city commercial bank, Bank of Jiangsu, successfully started trading in early August after raising US$1.1 billion in the biggest initial public offerings (IPO) this year, the first A-share banking IPO since August 2010.

The lender’s share price had surged 93 per cent from its offer price at 6.27 yuan by Friday, giving it a valuation of 1.6 times to book value (or PBV, a stock’s market value to its book value), the highest of any bank listed in China.

Market watchers are in no doubt that other mainland city lenders will now follow suit, given the favourable policies in place compared to previous years, and the more efficient listing environment in the mainland.

Thirty-two companies have completed mainland IPOs in the past two months, raising a total of 196.39 billion yuan in funding. The IPO market was closed during the same period last year.

Edward Au, co-leader of the national public offering group at Deloitte, said Chinese mainland IPO approvals are now progressing at a normal pace, and with markets generally stabilising compared with the turmoil of last summer, he added Chinese regulators are also expected to be even more lenient towards IPO approval.

Having dual listings in Hong Kong and Shanghai, particularly, is seen as an ideal way to raise funds, but gaining an A-share listing approval can be a potentially long process, given the pipeline that still exists.

According to the China Securities Regulatory Commission, more than 800 companies have filed IPO applications, and await listing slots.

The Bank of Jiangsu filed its IPO application six years ago, which might offer an illustration of just how difficult the process can prove.

The attraction of the mainland market by the banks could also come from their relatively poor performance on the Hong Kong market of late.

The price book ratio of Chongqing Rural Commercial Bank and Bank of Qingdao, for instance, stand at 0.7 and 1.01 times, respectively, against Shanghai-listed Bank of Jiangsu’s 1.6 times.

The two banks also both recorded share price drops this year, down 5.76 per cent and 0.4 per cent respectively, while the city’s benchmark Hang Seng Index increased 4.54 per cent during the same period.

Hong Kong investors are cautious, because they expect these [mainland city commercial banks] would be the first to take the blunt of any credit crunch
Linus Yip Sheung-chi, First Shanghai Securities chief strategist

“The city commercial banks are under huge pressure from both low valuations and trading volumes,” said Linus Yip Sheung-chi, First Shanghai Securities chief strategist.

“Hong Kong investors are cautious, because they expect these banks would be the first to take the brunt of any credit crunch.”

Au echoes the view, adding that institutional investors – who dominate the Hong Kong market – view the city commercial banks as risky, too, due to the levels of local Chinese debt, and the weakened economy.

Of course, it is not just city commercial banks that are seen as having cheap Hong Kong stock valuations.

Early this year, even Chinese billionaire Wang Jianlin, considered Asia’s second richest man, announced plans to privatise his Hong Kong-listed Dalian Wanda Commercial Properties and relist it in China, hoping for a higher valuation.

Au adds that with stock trading links between the mainland and international markets likely to grow – through the planned Shenzhen-Hong Stock Connect, and its already up-and-running Shanghai equivalent – all trading is likely to come under similar standards, which should help shrink the valuation differences.

“Valuations for the same company in different market will not be so different in future,” said Au.

“If the registration-based system for stock market flotations also proves to work in China, the listing process will accelerate.

“And by then, a company’s choice of bourse will mainly depend on its requirements for business development, rather than valuation or waiting time,” Au added.

The experts agree that for Chinese city commercial banks, a dual listing will improve their options for successfully raising capital and their reputation, but some fear their actual popularity among mainland investors might not be as high as it was for Bank of Jiangsu.

Its share price has almost doubled since its August listing, partly thanks to it being the first successful A-listing by a city commercial bank in nine years.

“With more banks expected to list in Shanghai or Shenzhen, mainland investors will be spoilt for choice when it comes to banking investment,” said Au.

“But their stock market performance will inevitably come down to the quality of their individual operations.”