China's Bank of Communications has raised $1.88 billion in a hotly-anticipated initial public offering (IPO) that will set the tone for future flotations by the mainland's big lenders. The pricing of the IPO, announced on Saturday, was at the high end of expectations.
Bank of Communications (BoCom), China's fifth-largest lender, is the first Chinese bank to list on an overseas market, preceding multi-billion dollar listings from state-run China Construction Bank and Bank of China
Shanghai-based BoCom priced 5.86 billion shares, or 13 percent of its enlarged share capital, at HK$2.50 each, Goldman Sachs, one of the sponsors of the deal said.
That was near the top of an indicated price range of HK$1.95-$2.55 and 1.6 times its estimated book value at the end of 2005. The counter is expected to begin trading on June 23.
The valuation is at a discount to mainland-listed banks such as China Merchants Bank Co Ltd, Minsheng Banking Corp and Shanghai Pudong Development Bank, which trade between 1.7 and 2.4 times 2005 book.
On average, most Asian banks trade at around 1.6 times book. HSBC, which last year paid $1.75 billion for 19.9 percent of BoCom, trades at 2.1 times forward book.
In terms of price-earnings ratio, BoCom is priced at 14.8 times 2005 earnings per share of HK$0.169.
By comparison, its mainland peers are trading between 12 and 18 times forward earnings. HSBC trades at 13 times P/E.
BoCom received retail orders worth HK$150 billion (US $19 billion), or 205 times the shares initially allocated to individual investors in Hong Kong, making it the fourth-most popular IPO in the city since China Life's listing in late 2003.
The institutional part of the offering was covered 20 times, sources close to the deal said.
BoCom's IPO is a key step in the ongoing restructuring of China's enormous and troubled banking sector, which is weighed down by the legacy of government-directed lending to bloated state-owned enterprises and more than $200 billion in bad debt.
Bank of China and Construction Bank have been cleaning up their own balance sheets and are seeking foreign strategic investors with deep pockets and global expertise ahead of IPOs that could raise more than $10 billion combined.
On Friday, No 2 US lender Bank of America said it would pay $3 billion for a 9 percent stake in Construction Bank, which is planning a $5 billion IPO later this year.
Bank of China, the parent firm of BOC Hong Kong, is likely to go public next year. Industrial & Commercial Bank of China, the country's biggest lender, is planning to follow with its own listing some time in 2007.
Privately-held Minsheng had planned to launch its $800 million Hong Kong listing in early June, but it postponed the flotation until September as it waits to see how the market reacts to BoCom.
This year, BoCom's return on assets is expected to rise to 0.65 percent, compared with just 0.15 percent last year - still a far cry from the 1-2 percent level of Hong Kong banks.
The bank plans to improve profitability by shifting its focus to retail banking, which accounts for just 10 percent of its current revenues, and to lower its non-performing loans and operating costs.
Comments
Comments are closed.