Banking & Finance

Guangzhou Rural Commercial Bank expects to raise US$1.1b at IPO ‘to bolster balance sheet’

Guangzhou Rural Commercial Bank says it will price its IPO on or around June 13, in a share sale expected to raise US$1.1 billion

PUBLISHED : Wednesday, 07 June, 2017, 10:06pm
UPDATED : Wednesday, 07 June, 2017, 11:04pm

Guangzhou Rural Commercial Bank (GRCB), China’s fifth largest rural commercial bank by assets, says funds raised at its upcoming initial public offering in Hong Kong will boost its balance sheet, adding that it expects a broadening economic recovery in China.

The state-backed lender, located in the most prosperous province of China, is seeking to raise US$1.1 billion from its Hong Kong IPO in what is tipped to be the biggest bank listing in the city since last September, when China Postal Savings Bank raised US$7.32 billion.

The move comes at a time when an economic slowdown, highlighted by a series of closures by state-owned firms, has seen Chinese banks scramble to bolster their balance sheets and mitigate credit risks.

“As the country shows signs of an economic rebound, we are hopeful that our business environment will be stable and our balance sheet will be much stronger after the public listing,” said Peng Zhijun, vice president and chief risk officer with GRCB.

China’s five largest banks reported better-than-expected figures for non-performing loans during the fourth quarter, helped by improved macroeconomic conditions.

Yet analysts caution the country’s rural commercial lenders are subject to bigger risks on the grounds that they often deal with smaller borrowers.

“Compared with the blue-chip Chinese lenders, these small-to-mid cap banking stocks with less transparency are less appealing among investors,” said Sam Chi-yung, senior strategist at South China Financial Holdings.

The Guangzhou bank also has a rather fragmented ownership structure. It counts over 29,000 shareholders, many of whom are farmers, with the 10 biggest shareholders controlling a combined 31 per cent of the company.

The lender’s net profit last year increased 2.1 per cent on year to 5.11 billion yuan (US$751.9 billion), while revenue dropped 5.6 per cent to 15.2 billion yuan. Its non-performing loan ratio stood at 1.81 per cent, up from 1.80 per cent in 2015. The Guangzhou bank partly blamed the slowing economy for the rising bad loan ratio.

A unit of HNA Group and Aeon Life Insurance, controlled by China’s second richest man Wang Jianlin, are among cornerstone investors who committed a combined US$431 million investment in the company.

The company said it intends to price the IPO on or around June 13, while Hong Kong trade is expected to debut from June 20.