Chinese bank Guangzhou Rural higher in Hong Kong trading debut, though retail investors cautious
Guangzhou Rural Commercial Bank (GRCB) shares were higher in their debut trading on Tuesday, in line with market expectations for Hong Kong’s largest new listing this year.
China’s fifth-largest rural commercial bank by assets is raising US$1 billion after pricing its initial public offering at HK$5.10 a share, slightly below the middle of the indicative range of between HK$4.99 and HK$5.27.Shares traded at HK$5.12 by the Tuesday noon break, up about 0.4 per cent from its IPO price.
The listing size surpasses the US$511 million raised by WuXi Biologics (Cayman) earlier in June and is the biggest since China Postal Savings Bank raised US$7.32 billion on the Hong Kong bourse last year.
Three cornerstone investors subscribed to 41 per cent of the GRCB shares, including US$193 million each from Aerial Wonder, a subsidiary of HNA Group, and Aeon Life Insurance Company, controlled by Chinese tycoon Wang Jianlin. International Merchants Holdings bought shares worth US$40 million.
Guangzhou Rural’s total assets were worth 661 billion yuan (US$97 billion) at the end of 2016, with a price to earning ratio of about 1.03 times, which is slightly more expensive than the large Chinese state-owned lenders. While its net interest income fell 8 per cent year on year in 2016, net fee and commission income rose 3 per cent.
“It doesn’t have much of a selling point so its share price is unlikely to rise sharply in its first week of trading,” said Hannah Li, strategist at UOB Kay Hian. “But there isn’t much downside room either because it has four strong Chinese sponsors.”
Proceeds from the offering will be used to strengthen its capital base for business operations.
Sponsors for the IPO include ABC International, CCB International, China International Capital Corp and China Merchants Securities.
Analysts had been expecting lukewarm demand from Hong Kong retail investors because of worries about rising levels of bad debt and off-balance sheet products at mainland Chinese banks.
Rural lenders may also face higher funding risks and have less transparency than large, state-owned banks. Two Hong Kong-listed mainland rural lenders, Chongqing Rural Commercial Bank and Jilin Jiutai Rural Commercial Bank, have been underperforming the broader market since the end of April.
In an effort to contain risk, Chinese regulators have been cracking down on the financial sector to reduce debt being used for investment purposes.
Authorities have been targeting financial institutions that raise funds by offering wealth management products, and then turn around and use the proceeds for investments in the coal, steel and property industries.