Global bank shares are gyrating after the UK vote to leave the European Union. Hedge fund managers and analysts are sounding increasingly dire warnings about the bad debts piling up on the balance sheets of Chinese banks.
Postal Savings Bank of China, which last week shrugged off the naysayers, filed a listing application with the Hong Kong Stock Exchange. The bank, China’s sixth largest in terms of assets, is seeking to raise $8bn in what could be the world’s largest IPO this year, according to people familiar with the matter.
Despite the questionable timing, analysts are confident that the IPO will be a success, noting that the actual listing isn’t likely to take place until September.
“There is no doubt it will be a tough sale and Postal Savings Bank will have to price the IPO close to its book value to appeal to investors,” said Li Bin, a Shanghai-based analyst at Capital Securities Corp “But I believe it can nail it.”
Postal Savings is more focused on the “political achievement” of listing its shares in Hong Kong - the last step of its transformation from a sleepy postal service into a fully-fledged lender - rather than the precise timing of the IPO, Li said.
An arm of the state-owned China Post Group Co, and with about 6.8tn yuan ($1tn) of assets at the end of September, it’s the last major Chinese commercial bank yet to be listed.
Britain’s vote to exit the European Union last month has roiled global equity markets and caused the pound to plunge to its lowest in more than 30 years.
At the same time, there are growing concerns about the true level of bad debt in the Chinese banking system, which have pushed valuations of the nation’s lenders to near-record lows.
China’s five largest state banks are now trading in Hong Kong at an average of 4.7 times their estimated earnings for this year, and at 0.6 times their estimated book value, according to data compiled by Bloomberg. That is well below the average of 11 times price-to-earnings and 1.1 times price-to- book for global banks with a market value of at least $10bn.
Turbulent market conditions have affected other recent public offerings by Chinese financial firms. Orient Securities Co and China Development Bank Financial Leasing Co both ended up pricing their Hong Kong share sales last month near the low end of the marketed range.
Bank of Jiangsu Co, which has been preparing for a domestic IPO for six years, slashed the number of shares it had planned to sell by more than half. BOC Aviation, which raised $1.1bn and started trading in June, closed on Thursday 6.3% lower than its offer price in Hong Kong.
Globally, companies have raised $52.3bn from first- time share sales in the first half, the slowest pace in seven years, Bloomberg-compiled data show. Postal Savings Bank’s IPO would be the largest since e-commerce billionaire Jack Ma’s Alibaba Group Holding priced its $25bn New York share sale in September 2014, according to data compiled by Bloomberg.
For some, Postal Savings Bank’s sense of timing is reminiscent of Agricultural Bank of China, the nation’s third-largest lender, which completed its $22.1bn IPO in 2010 at a time of similar turmoil in global markets. Despite almost 50 companies worldwide shelving their IPOs in the three months before its offering, AgBank proceeded with the listing and priced the shares near the upper end of the range.
With 500mn customers and more than 40,000 outlets, Postal Savings Bank has received the support of UBS Group, Temasek Holdings and eight other strategic investors which in December bought a total 17% stake for 45bn yuan. Other investors are JPMorgan Chase & Co and Alibaba Group Holding’s finance affiliate, Zhejiang Ant Small & Micro Financial Services Group Co.
The bank also has a relatively clean balance sheet, without the legacy of bad loans which is troubling other Chinese lenders. Its nonperforming loan ratio stood at 0.64% by the end of 2014, compared with an industry average of 1.75% as of March 31.
“The timing could be even worse going forward, but it doesn’t really matter,” said Xue Huiru, a Shanghai-based analyst at SWS Research Co.
If Postal Savings Bank encounters difficulties attracting investors to its shares as the offering proceeds, it can always bring in Chinese insurers and other state companies to take stakes in the bank, Xue said.
A pedestrian walks past a Postal Savings Bank of China branch in Shanghai. The bank, China’s sixth largest in terms of assets, is seeking to raise $8bn in what could be the world’s largest IPO this year, according to people familiar with the matter.
