Going, going, still no takers? China’s small, indebted local banks fail to attract buyers at auction, even at half price
- Chinese banks are trading at a distressed level in Hong Kong, at an average of 0.6 times their forecast book value
- Stocks and bonds of smaller banks – companies that UBS estimated are facing a potential capital shortfall of 2.4 trillion yuan – are struggling to find buyers
To see how little investors love China’s small banks, look no further than the nation’s largest online auction site.
On Alibaba Group Holding’s Taobao platform, a Chinese court tried to auction off 1.5 million shares of a rural bank in the eastern Zhejiang province for a starting price of 1.15 million yuan (US$161,000) – about half their appraised value. After three failed attempts over two months, the latest relisting drew only about a thousand views. And not a single bid.
Investors are shunning China’s smaller banks as many contend with a growing pile of soured loans, weaker capital buffers and poor risk management following years of breakneck expansion, often through non-traditional financing. As a result, stocks and bonds issued by smaller banks – companies that UBS Group has estimated are facing a potential capital shortfall of 2.4 trillion yuan – are struggling to find buyers.
“Most banking licenses are no longer valuable,” said Zhang Shuaishuai, a Shanghai-based analyst at China International Capital Corporation (CICC). “With the ongoing deleveraging campaign, fiercer competition and tougher regulatory oversight, some smaller banks are fighting a battle for survival. Investors have no confidence in the healthiness and transparency of their balance sheets.”
The problems at Baoshang and Jinzhou aren’t isolated issues, Xiaoxi Zhang, an analyst at Gavekal Dragonomics, wrote in a note to investors Thursday. “China is not yet finished dealing with the fallout from small banks’ years of reckless growth,” she said.