BOC storms to 15pc gain on first day of trading

Stock bucks trend as investors show faith in banking giant despite market slide sparked by US interest rate fears

Bank of China, the mainland's second-largest lender, surged a better than expected 15.25 per cent in its trading debut yesterday as fund managers snapped up shares they had failed to win in the bank's heavily oversubscribed initial public offering.

The gain was all the more striking in that BOC, whose $75.4 billion offering was the world's biggest in six years, bucked a broad market decline triggered by concern that the US Federal Reserve might raise interest rates more than investors had been expecting.

Such news typically depresses the shares of financial institutions, and HSBC Holdings fell $1.90 or 1.39 per cent to close at $134, worse than the Hang Seng Index's drop of 1.34 per cent to 15,645.27 points.

BOC opened at $3.15, up 20 cents from its offering price, and rose as much as 16.1 per cent to an intraday high of $3.425 before slipping back to close at $3.40. Investors had been expecting a smaller first-day gain, with shares changing hands in grey-market trading on Tuesday at an 11 per cent premium on the issue price of $2.95.

As befits the deal's size, BOC shares worth $20.05 billion changed hands, a record volume for first-day trading of an IPO, accounting for 37.1 per cent of total turnover. This surpassed the $8.58 billion achieved by China Construction Bank Corp on its debut in October last year, and the $7 billion traded on China Life Insurance's opening day in December 2003.

Brokers attributed much of BOC's gains to strong demand from institutions that wanted to bolster their stakes in the bank.

Before trading began, 'a large number of buy orders without price limits piled up', one dealer said.

One fund manager, who topped up his skimpy allocation of BOC shares, said he reckoned the bank's share price could climb to $3.50 in coming days.

'The 12 corporate investors cannot sell their shares until 12 months after the listing, and index-tracking funds need to buy more shares' in order to reflect the stock's expected heavyweight status on stock indices, he said.

The combination of tight supply, strong demand, and the desire of many investors to place a bet on China's surging economy, meant 'the stock is likely to rise further', he added.

BOC stock will be added to the FTSE/Xinhua China 25 Index today.

Others figure BOC's underwriters made a smart call by guaranteeing that each retail investor who placed an order received at least one board lot, or 1,000 shares.

'The diversified allocation has reduced retail investors' intention to take profit on the first day as they don't really make a sizeable gain by selling just 1,000 shares,' said Kenny Tang Sing-hing, an associate director at Tung Tai Securities. 'In other words, they are supporting the share price.'

BOC received 954,024 valid retail applications for its IPO. Excluding transaction fees, investors can only make a profit of $450 by selling 1,000 shares - assuming they did not borrow to buy on margin.

Impressive as it was, the 15.25 per cent gain merely covered margin costs for those who paid for their allocations using borrowed money.

Brokers said that the cost per share for investors who subscribed for one million BOC shares through margin financing was about $3.40 and the counter's first-day gain had simply permitted them to beak even.