Analysts expect ‘cautious’ response to Guangzhou Rural Bank’s US$1.1b IPO
China’s 5th biggest rural bank by assets could be largest bank IPO in Hong Kong this year, and biggest in the city since China Postal Savings Bank raised US$7.32b, nine months ago
Guangzhou Rural Commercial Bank (GRCB), China’s fifth biggest rural commercial bank by assets, is seeking a Hong Kong initial public offering worth up to HK$8.33 billion (US$1.1 billion).
But some analysts are cautious about the interest level from Hong Kong retail investors, given their worries on the sector’s outlook this year.
The Guangzhou company, which was valued at as much as HK$50.5 billion, plans to issue 1.58 billion new shares with an indicative range of HK$4.99 to HK$5.27 per share, according to a prospectus seen by the Post.
The listing could be the biggest bank IPO in Hong Kong since last September, when China Postal Savings Bank raised HK$57 billion (US$7.32 billion).
The company said it intends to price the IPO on or around June 13 and trade on the Hong Kong stock exchange from June 20.
However, analysts doubt Hong Kong retail investors will show much interest in the stock after the trading debut, due to worries about the outlook of Chinese banking sector.
“I expect a lukewarm response from retail investors [for the stock],” said Victor Au, chief operating officer at Delta Asia Securities.
“Rural commercial banks have not been a favourite of Hong Kong stock investors recently. Even for bigger stated-owned Chinese banks, investors are worried about their rising bad debt levels and off-the-balance sheet products.
“For these rural lenders, with higher funding risks and lack of transparency, investors probably have more concerns.”
There are currently two mainland rural commercial lenders trading in Hong Kong: Chongqing Rural Commercial Bank (CRCB) and Jilin Jiutai Rural Commercial Bank (JJRCB).
However, both have underperformed the general market since the end of April.
CRCB has fallen 6 per cent since then, and JJRCB is down 7 per cent, while the Hang Seng Index has risen 5 per cent.
Au said the government-owned bank may have no problem in getting enough subscriptions for its IPO from institutional investors.
However, after it makes its trading debut, the market response may be “cautious”.
“The Chinese banking sector faces a big challenge this year, as the regulatory crackdown to reduce financial leverage will cause a liquidity strain on the banking system,” said Hao Hong, chief China strategist for Bank of Communications International Holdings.
“In particular, rural commercial banks may be affected by tighter liquidity more than bigger lenders, as they tend to have higher leverage and interbank borrowing costs, ” he said.
GRCB has already pulled in around US$431 million from three cornerstone investors, including a unit of HNA Group and Aeon Life Insurance Company, controlled by Chinese tycoon Wang Jianlin.
Sponsors for the IPO include ABC International, CCB International, China International Capital Corp and China Merchants Securities.
GRCB did not replied enquiries made by the Post for further comment.
At the end of 2016, the lender’s total assets were worth 661 billion yuan (US$84.85 billion). Net profit last year increased 2.1 per cent to 5.106 billion yuan from a year earlier.
Its non-performing loan ratio stood at 1.81 per cent, lower than the industry average of 2.49 per cent, the prospectus said.