Bocom promises strong debut as sentiment firms

Analysts expect Bank of Communications to post a strong debut today, supported by heavy subscription levels and solid gains in the local stock market yesterday.

Ben Kwong Man-bun, a director at KGI Asia, said he now expected Bocom to open at about $2.80 and trade up to $3 today, or as much as 20 per cent over the $2.50 offer price, higher than the 8 per cent to 12 per cent gains he had forecast last week.

'Bocom's share price should perform better as the jump in the Hang Seng Index will have improved investor sentiment,' he said. His projections were in line with those of most other observers.

Yesterday, the stock changed hands at between $2.65 and $2.90 in the grey market - an over-the-counter market where shares can trade before they are formally listed on the stock exchange.

Brokers said that retail investors who borrowed money to subscribe were likely to break even at $2.70, as margin lending rates had been quite low during the subscription period.

The fact that Bocom is the first mainland bank to list overseas was a strong draw for both institutional and retail investors. HSBC's 19.9 per cent stake in the bank also enhances its appeal, reassuring investors that the lender will not revert to the days when massive non-performing loans were the main reason it made headlines.

But analysts believe the newcomer will struggle to get past $3 in the near term.

'At $3 Bocom will have a [forward] price-to-earnings multiple of about 15 times, higher than Bank of China (Hong Kong) and in line with HSBC,' said Kenny Tang Sing-hing, research manager at Tung Tai Securities.

Phillip Securities director Louis Wong noted that at $3 Bocom would be at about 1.8 times book value, well above the average of 1.6 for Asian banks.

'At those levels I advise my clients to be cautious,' he said.

Bocom raised $14.63 billion after pricing its offer towards the top end of the $1.95 to 2.55 range - a fact that some observers said would leave less room for upside in the secondary market.

However, strong demand - the retail offer was 204 times subscribed, while the institutional tranche was about 20 times covered - would seem to warrant the high pricing, others said.

Steven Leung Wai-yuen, a director with UOB Kay Hian Hong Kong, argued that typical first-day selling by retail investors could end up being much reduced this time around, as many had bought for the long term.

'A lot of retail investors like holding banks. They see Bocom as a Chinese Hang Seng Bank because of HSBC's involvement,' he said.

All retail investors who subscribed for the offer received at least 1,000 shares while retail investors as a group received 20 per cent of the share offer.

Danny Palmer, global head of equity capital markets at HSBC, said Bocom's share offer had paved the way for future privatisations in the industry.

'Many investors had to do quite a lot of homework and in many cases they started at a low knowledge base,' he said, adding that the positive response brightened prospects for other mainland banks preparing to go public in future.

HSBC and Goldman Sachs were joint global co-ordinators for Bocom's offer.

China Glass Holdings, which also starts to trade today after raising $196.2 million, is expected to attract a lot less attention and the upside is likely to be limited after the offer was priced at $2.18, the upper end of its indicative price range.