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The IPO of Bank of Jiangsu sets to lead others
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Bank of Jiangsu, the first Chinese commercial bank to debut in the mainland market in 2009, plans to raise about 7.24 billion yuan (US$1.1 billion) through its initial public offerings on A share market due tomorrow, testing investor appetite for stocks heavily exposed to the country’s rising level of bad loans.
The regional bank plans to issue its IPO at a price of 6.27 yuan per share, according to its announcement filed to Shanghai Stock Exchange today. The scale of its issuance nearly halved comparing to what it planned about a year ago, considering about the market volatility and fragile sentiment during the recent period of time, market insiders said.
Besides Bank of Jiangsu, at least 14 commercial banks have issued announcement on their IPO plans this year, including Bank of Shanghai, Bank of Guiyang, and five other rural commercial lenders from the Jiangsu Province. Among them, eight of which received green light from the regulator on June 17.
The 14 lenders, if listed, are likely to raise a total 72 billion yuan after issuance, tapping a market value of 440 billion yuan, estimated analysts of Guotai Jun’an Securities Co in a recent note.
“It’s an inevitable choice for lenders to go public,” said Jimmy Leung, banking and capital markets leader at PwC China. “Less capital set aside leaves less room for these banks to create more profit-driven products, and the strict rules from the regulator force lenders to seek more channels for capital.”
Chinese regional and city banks have been facing hurdles in mainland IPOs due to strict requirements from China Securities Regulatory Commission. The market has once warmed up for small lenders’ IPOs in the first half of 2015, but the talk soon vanished with the stock market turmoil that had deteriorated investors’ sentiment at the time.
Many small lenders chose to sell shares in offshore market such as Hong Kong, such as Bank of Jinzhou, Bank of Qingdao, and Bank of Zhengzhou. But their stocks remains a hard sell since banks in China are facing tighter profit margins and increased capital pressure after China liberalized deposit and lending rates, as well as a rising volume of nonperforming loans.
“Going public is not the cure-all medicine for lenders,” told an analyst in Bohai Bank who refused to be identified. “It might relieve the liquidity problem for those lenders but couldn’t solve their problems with rising bad loan ratio and their connection with a cooling economy. What should they do is to introduce more fee-generating businesses to help the profit growth.”
The 14 to-be-listed regional banks have an average bad loan ratio at 1.4 percent, according to Shanghai Daily calculation based on banks’ annual reports, with Bank of Chengdu ranking the worst at 2.35 percent. The average ratio among the banking industry was 1.94 by the end of 2015, according to China Banking Regulatory Commission.
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