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Bank of Shanghai, a commercial lender in the mainland’s wealthiest city, is planning a dual listing in Shanghai and Hong Kong. The deal will be an important test for investor appetite in China’s smaller banks, which often act like the finance arm of local governments and play an important role in the local economy.
If successful, Bank of Shanghai will be the fourth city lender in China to list. There are currently three banks — Bank of Beijing, Bank of Nanjing and Bank of Ningbo — quoted on the A-share market.
Bank of Beijing and its Nanjing peer listed in Shanghai through a $2 billion and a $915 million IPO, respectively, in 2007. Bank of Ningbo went public in Shenzhen through a $547 million IPO in the city earlier in the same year. All of the three lenders’ IPOs were heavily over-subscribed by investors and their share prices rose sharply on the first trading day.
However, almost five years after their triumphal IPOs, the Beijing and Nanjing lenders have now lost all of their early gains and are both trading below their IPO prices, while Bank of Ningbo has edged slightly above its IPO price.
Allowing the city-level commercial banks to launch IPOs again has been on the agenda of the China Securities Regulatory Commission (CSRC) and there are about 10 such banks waiting for regulatory approval. However, the regulator is still drafting the listing thresholds for smaller lenders.
“The regulator will not allow all the city commercial banks to go public,” said May Yan, a banking analyst at Barclays. “Their profitability varies dramatically. Only the most profitable players will receive the green light so that investors get the chance to capitalise on China’s city-level economies.”
Shareholders at Bank of Shanghai approved a Hong Kong offering last Friday, in which the bank will issue no more than 1.2 billion H-shares, or 15% of its enlarged share capital. It will also allow bookrunners of the deal to exercise the over-allotment option to sell an additional 15% H-shares, according to the official China Securities Journal. It didn’t say who the bookrunners will be.
The bank has already submitted an application to CSRC to offer no more than 1.2 billion A-shares through a Shanghai IPO.
Zhang Weiguo, vice-president of the bank, dismissed news reports that the lender will only seek a Hong Kong listing. He said the bank’s assets will expand at about 20% during the next two to three years and it will need around Rmb30 billion ($4.75 billion) to fund that growth.
The city-level banks are keen to punch their weight nationwide but are painfully aware that there are barriers set by the authorities and strong competition from the nation’s top lenders. However, as one bank executive said: “Their advantage is that, compared to the top state-owned lenders, they have closer relationships with local governments. Some of the city banks were actually founded by the local governments. But the smaller banks focus more on their scale and tend to prioritise expansion over risk management.”
