Bank of Jiangsu is set next week launch its long-awaited A-share initial public offering, which is likely to be mainland China's largest flotation so far this year and the first in Shanghai by a city commercial lender since 2007.
After cutting the size of its planned offering in keeping with regulator efforts to maintain market stability, the Nanjing-based bank now intends to raise about Rmb7.24 billion ($1.08 billion) by issuing about 1.15 billion new shares, or up to 10% of its enlarged stock capital, one equity capital markets banker familiar with the matter said on Tuesday.
The amount of capital targeted by the Chinese provincial lender is less than the Rmb10 billion reported by FinanceAsia last summer, before Chinese stock markets began to tumble. Bank of Jiangsu had initially aimed to issue up to 2.6 billion shares, its preliminary prospectus filed with the regulator showed at the time.
The transaction, due to be launched next Wednesday, would nonetheless be China’s largest A-share IPO so far this year, beating tyre manufacturer Shandong Linglong Tyre’s $396 million flotation in June and brokerage firm First Capital Securities’s $359 million IPO in April, according to data provider Dealogic.
The targeted capital raise and number of shares to be issued suggests the IPO price is likely to be set at Rmb6.27 per share, which would value Bank of Jiangsu at a historical price-to-book ratio of 1.0 as of the end of 2015, according to the banker working on the transaction.
“The regulator most recently approved the IPO applications of seven companies and asked them to raise no more than Rmb8.8 billion ($1.34 billion) in total, which means Bank of Jiangsu could not set the IPO price so high otherwise it alone could raise more than Rmb8.8 billion due to the total number of its shares to be issued,” the banker told FinanceAsia.
The bank’s listing comes at a time when the Chinese regulator has slowed the pace of approvals for new offerings, curbed the size of new deals, and tightened the rules over so-called backdoor listings to support market liquidity levels and tamp down the speculation frenzy in unprofitable listed shell companies.
Dealogic data shows that 60 Chinese companies have raised a combined $4.5 billion so far this year by issuing A-share IPOs – an 81% drop on the same period last year.
First since 2007
Bank of Jiangsu’s IPO would be the first A-share listing of a Chinese city or rural lender on the Shanghai stock exchange since 2007, when Bank of Beijing, Bank of Nanjing, and Bank of Ningbo all went public.
Established in 2007, Bank of Jiangsu is generally seen as one of China’s best performing local commercial banks. Last year it posted a net profit of Rmb9.5 billion – a 9.3% improvement on the 2014 financial year. In comparison, listed peers Bank of Nanjing and Bank of Ning made Rmb7 billion and Rmb6.54 billion each, respectively.
The average 1.12 times price-to-book of the three listed city commercial lenders also indicates that Bank of Jiangsu's share price could make gains once the bank is listed.
That said, the recent rise in non-performing loans in China due to the slowing economy and a narrowing of interest rate margins due to monetary easing by the People's Bank of China could yet cast a shadow over the IPO, according to some equity analysts and investors.
“Banking stocks might not be the best investment for investors at the moment as the risk of Chinese banks’ non-performing loans hasn’t been fully exposed and their interest rate margins keep being squeezed,” said one Beijing-based portfolio manager at Citic Securities.
The NPL ratio of Bank of Jiangsu stood at 1.43% as of the end of last year, up from 1.3% a year earlier and slightly higher than the average 1.4% NPL ratio of Chinese city commercial lenders, according to the bank’s 2015 annual results and the Chinese banking regulator's data.
Along with Bank of Jiangsu, some 13 city or rural commercial banks are queued in the pipeline waiting for regulatory approval. Among them is Bank of Shanghai and Bank of Hangzhou.
Bank of China International is the sole sponsor of Bank of Jiangsu’s listing, while Huatai Securities is the joint bookrunner alongside BOC International.
