Bank of Jinzhou priced Hong Kong's second-largest initial public offering by a city commercial bank on Tuesday despite lacklustre demand from retail investors and the lack of a big cornerstone tranche.
Final pricing came a day later than scheduled because of documentation issues but the Liaoning province-based lender was at least able to push the final price slightly off the bottom of the HK$4.64 to HK$5.54 indicative price range, a source familiar with the situation told FinanceAsia.
The price for the 1.32 billion share sale was set at HK$4.66 per share, generating total proceeds of HK$6.15 billion ($790 million), surpassing Bank of Qingdao’s $607 million deal, which priced a week earlier.
The largest Chinese city commercial bank listing in Hong Kong to date is Shengjing Bank's $1.3 billion IPO in December 2014.
Perhaps the key difference between the Bank of Jinzhou and Bank of Qingdao offerings rests with their strategies for accepting pre-deal orders from cornerstone investors.
Bank of Jinzhou accepted only one cornerstone ticket – $120 million from Hong Kong Tian Yuan Manganese International Trade, which accounted for about 15% of the deal based on the final price.
“Despite the absence of a long list of cornerstone investors, the company has [had] high visibility over demand since day one and was therefore very confident about the [no cornerstone] structure,” the source familiar with the situation said.
By comparison, Bank of Qingdao sold 72% of its offering ahead of the bookbuild.
With a higher float in the secondary market, Bank of Jinzhou will likely be a better reflection of public demand for Chinese bank offerings when the two make their market debuts later this month.
Yet retail investors appeared to show little interest in the lender, so the Hong Kong public offering -- 10% of the total deal -- was undersubscribed while the institutional tranche was slightly oversubscribed, according to a second source familiar with the situation.
Valuation
At the final price Bank of Jinzhou is valued at par to its historical book value as of the end of June and 0.93 times consensus book value estimates this year.
Similar to other city commercial banks, Bank of Jinzhou is in urgent need of capital to restore its capital adequacy ratio above the 10% mark. The ratio declined to 8.92% as of the end of June, from 10.45% last year, and is well below that of other listed commercial banks, which mostly have a capital buffer of at least 12%.
Its tier-1 capital adequacy ratio also declined sharply to 7.03% by the end of June from 8.64% last year.
Aside from enabling financial companies to raise equity capital, a public listing gives them greater access to debt capital markets and makes it easier for them to get credit ratings for the purposes of corporate bond issuance.
In the most recent example, China Huarong Asset Management raised $1.8 billion from a triple-tranche bond in less than a month after its $2.3 billion IPO in Hong Kong.
So it would not be surprising for Bank of Jinzhou to now also turn to the debt market for future funding.
CCB International and Barclays are joint global coordinators of the Bank of Jinzhou IPO. ABC International, China Securities International and CMB International are joint bookrunners.
