Cinda set to reveal IPO price guidance
With 15 banks on the US$2 billion deal, shares in mainland bad-assets manager expected to be tentatively offered at a 'low' 1.2 times book value
China Cinda Asset Management will reveal the indicative pricing for its long-anticipated US$2 billion initial public share offering in Hong Kong today, days before a two-week global roadshow to market the deal.
Fifteen investment banks are working on the transaction - the first share sale for one of the four asset management firms set up by Beijing in the late 1990s to suck up bad loans ahead of the then record-breaking recapitalisation of state banks.
A source at a bank working on the deal told the South China Morning Post that underwriters would tentatively offer shares at a price of 1.2 times book value, at the lower end of market expectations of 1.1 to 1.5 times book value.
Shares in the mainland banking sector trade at about 0.9 to 1 times book value.
Cinda's anticipated sale of 5.32 billion shares, or about 15 per cent of the company's enlarged capital, will be a landmark offering that is expected to be followed by those of its three sister organisations.
Huarong Asset Management is completing its pre-listing due diligence and market sources expect it to come to the market no later than six months behind Cinda.
Analysts say the mainland's managers of bad assets are lining up to raise capital in preparation for a new round of bad-debt mop-ups from state-backed lenders that are struggling under a growing burden of souring loans.
While the mainland banking sector's official non-performing loan ratio - a key measure of debt sustainability - has hovered at about 1 per cent of total lending for years, the lenders have been putting aside growing sums of cash for provisions against debts that they fear will never be repaid.
The nine Hong Kong-listed mainland banks reported an average increase in non-performing loans of 45.5 billion yuan (HK$57.8 billion) in the third quarter, 4.2 per cent more than the previous quarter, their most recent financial reports show.
Among them, the Big Four - Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China posted the largest increase in at least three years, with soured loans up 3.5 per cent at a combined 329.4 billion yuan.
Some of the problem loans that Cinda buys - at up to a third of the face value of toxic assets - undergo a securitisation process into mortgage-backed securities.
Cinda, set up in 1999, also operates and owns licences in a number of other businesses including private equity, insurance and asset management, all of which represent about 30 per cent of its revenue.