China Merchants Bank, the mainland's sixth-largest commercial lender by assets, yesterday won preliminary approval from the Hong Kong stock exchange for its initial public offering that could raise as much as US$2 billion, market sources said. The decision clears the way for the Shenzhen-based bank and its advisers to begin marketing the stock to international institutional investors. The company's investment bankers would then take orders form Hong Kong retail investors between September 7 and 12, with trading set to begin in the week of September 18, the sources said. UBS, JP Morgan and China International Capital Corp are arranging the deal. The lender initially will offer 2.2 billion shares or 15 per cent of its enlarged share capital to Hong Kong investors. If demand warrants, it will make available an additional 330 million shares. The bank will not price the shares until it gets a clear reading on investor interest but market sources speculate it will seek more than HK$7 a share. That would value the lender at about 2.7 times forecast book value this year, said Yuan Lin, a banking analyst at BOC International. The money raised would boost its capital adequacy ratio to 10.9 per cent from 8.36 per cent as of the end of June, well in excess of the internationally set minimum. The valuation of its H-share offering could affect the price investors are willing to pay for China Merchants' A shares, which closed yesterday on the Shanghai stock exchange at 7.90 yuan, down 0.62 per cent. Historically, A shares have traded at a significant premium on a price-earnings basis to Hong Kong-listed H shares, although that spread has begun to narrow. Unless the H shares were priced at a very large discount to the A shares, Ms Yuan said the Hong Kong sale should not exert much downward pressure on the A-share price. Widely regarded as one of China's best-managed lenders, China Merchants recently reported a 31.11 per cent surge in net profit for the six months ended June to 2.79 billion yuan. The lender expects to earn at least 5.25 billion yuan for the year. A successful sale would make China Merchants the fourth mainland lender to go public in Hong Kong. China Construction Bank Corp and Bank of Communications sold shares last year and Bank of China raised HK$75.43 billion from an H-share offer in June. Industrial and Commercial Bank of China, which plans a share sale as early as October that could raise US$19 billion, is expected to set a record as the largest IPO in Hong Kong history, eclipsing Bank of China's US$11 billion offering.