In 2001, Bank of China listed its Hong Kong operations on the local exchange, and it was good. Regulators then gave their blessing for the Hong Kong listings of Bank of Communications, China Construction Bank, ICBC and Agricultural Bank of China, and investors rejoiced. It was a great 10-year run, in which Beijing bestowed on the local market giant IPOs that made investors a lot of money. Mainland financial institutions, including insurance firms, pretty much defined Hong Kong's new-listings market over the last decade.
Fast forward to today and signs that mainland bank listings are back on the agenda. A number of lenders are eyeing a Hong Kong float and at least three - Bank of Shanghai, China Guangfa Bank and China Everbright Bank - look realistic within the next 12 months.
Bank of Shanghai is the most promising of the bunch. The scuttlebutt among IPO bankers is that the bank, partly owned by British lender HSBC, has already filed its listing application with the local bourse and is ready to go public as soon as June.
It's way too early to talk about pricing for these deals and, in any case, bank valuations are complicated. Instead, investors might think about what Beijing is trying to achieve by listing these banks offshore. The first wave of mainland bank listings in Hong Kong in the 2000s focused on strategically important national banks. The government had an agenda to fulfil with those listings, which was to recapitalise what was an effectively bankrupt banking sector and to raise their lending standards and governance to international levels.
The government therefore placed a lot priority on the success of each bank listing. The deals could not fail - one failure would spoil the chances of the next IPO in the queue, which would imperil the whole reform programme.
For practical purposes that meant investors got a cheap deal. The bank stocks were priced cheaply to ensure a successful listing. The bank stocks all duly traded up and investors made a lot of money from those deals.
In fact, several mainland officials complained publicly at the time about underpriced deals for the likes of ICBC and China Construction Bank - the state was giving money away to investors and the investment banks that took pre-IPO stakes in the institutions.
So, might Hong Kong be poised for another round of cheap mainland bank IPOs to trade up on listings? Perhaps, but not likely.
There are similarities to the previous decade's bank IPO wave. As before, the listings are part of a sequence of floats orchestrated by mainland regulators. This new wave comprises municipal and provincial development banks.
While the government first time around was trying to reform a deeply dysfunctional banking system, it has more modest ambitions this time. For example, the government is said to want to list Bank of Shanghai so it can set up a system for distributing dividends for the state-controlled entities that own most of it. That's a valid reason for an IPO, but not exactly the stuff of strategic national importance.
One IPO banker observing Bank of Shanghai says the bank is trying to expand capital to increase lending and profits. Again, a worthy objective, but not nationally sensitive.
The upshot is that Bank of Shanghai and its municipal and provincial brethren are part of a trend. The mainland regulators are sending these banks offshore. But Beijing places less strategic importance on seeing a successful IPO than it did for, say, China Construction Bank.
This next round of banks seem more focused on getting the highest price possible for their offers. China Everbright, for example, has been trying to list locally since 2011 and has been repeatedly rebuffed, largely because of ambitious pricing.
Bank of Shanghai will likely be the first to test investor interest in the municipal bank concept. The bank is well run. There is no legacy of bad loans stemming from state-directed lending, as was the case of the Big Four state banks that listed in Hong Kong the previous decade.
HSBC also owns an 8 per cent stake in Bank of Shanghai, and is expected to retain this stake post-IPO. This will reassure investors the bank is solid and well governed.
So it's a mixed outlook for investors. The litmus test will be how Bank of Shanghai trades on listing. If the stock rises, it may signal that Hong Kong can expect a batch of cheap, well-performing municipal bank listings. If it fails to list, or tanks in early trading, this whole IPO theme will likely go nowhere.Topics: IPO Bank of Shanghai China Everbright Bank