Bankers are preparing to kick off a roadshow for Harbin Bank, which aims to raise $1 billion in a Hong Kong listing later this month, making it the latest Chinese bank seeking to float its shares amid mounting concerns of a debt crisis on the mainland.
On offer will be 3 billion shares, or 27.5% of the enlarged capital. Of these, some 2.7 billion will be new shares, with a greenshoe option of 453.5 million shares, according to a term sheet seen by FinanceAsia.
The formal roadshow starts Monday and concludes Friday, with bankers close to the deal noting that the bookbuild is on an accelerated timetable to help minimise market risk. Shares should price March 24 with the company targeting a March 31 listing date.
Bankers are set to meet with the usual suspects – long-only institutional investors, hedge funds and private banks across Asia and the US – as they drum up interest for the Northeast Chinese commercial bank.
It’s unlikely Harbin will be an easy sell in the current climate. Investors remain jittery after China reported its first-ever bond default last week after a series of near-misses. Shanghai Chaori Solar Energy Science and Technology said it couldn’t pay all of the interest on a 5-year bond it issued in 2011, setting off a long-overdue reassessment of the country’s credit risks and financials.
Both Hanhua Financial, China’s largest credit guarantor, and Shaanxi-based auto dealer Sunfonda Group, aimed to list last week but postponed due to weak demand.
“[Hanhua] is a good company but for them to price the deal after the [Chaori Solar] default occurred was always going to be difficult,” one banker told FinanceAsia.
Company strengths
Bankers close to the Harbin deal are nonetheless confident that the regional bank will still appeal to institutions.
“It’s a well-run bank. Some of the business lines are quite unique. Their micro finance [unit] is obviously a growth area for them and the IPO [will] get them additional access to funds to roll out [that division],” the banker said. “There’s some good value to be had.”
A second banker close to the deal agreed, noting that Harbin – “one of the better regional banks in China” – has a low loan-to-deposit ratio, a key selling point that will likely resonate with investors concerned about the country’s bad loans.
“It’s not as though they got to [their size] by not making loans – they’ve had 25% loan growth over the past few years. But they’ve got [solid] deposits coming in too. So it’s a nice, niche play,” the second banker said.
“They’re pretty conservative in terms of how they give out money. Their risk management is good,” echoed the first banker.
Other Chinese banks to hold IPOs recently include China Everbright Bank, which raised HK$23.25 billion ($3 billion) in a Hong Kong listing in December, its third attempt at going public; Bank of Chongqing, which raised $548 million in October; and Huishang Bank, which held a November $1.2 billion IPO.
Cornerstone investors played important roles in each of these deals – Everbright alone signed up 20 who agreed to buy a combined total of $1.744 billion worth of shares and, of these, 18 were Chinese or China-linked investors. It was a similar story for Bank of Chongqing and Huishang.
Bankers are said to have identified a few cornerstone investors for Harbin but declined to offer details.
The amount of money pledged by cornerstone investors to Asian banking and insurance sector IPOs appears to be on the rise. According to Dealogic data, in Asia ex-Japan, cornerstones invested $3.88 billion in financial companies pre-IPO in 2013, a 62% increase over $2.42 billion in 2012, and a 99% jump from $1.96 billion in 2011. It's down compared with 2010 however, when financials locked up $7.68 billion from cornerstones.
Depending on market performance, institutional investor demand for Harbin shares may be decent, particularly from global funds who are in the midst of shifting allocations from other poorly performing financials, sources say.
Everbright is down 26% so far this year, while Bank of Chongqing and Huishang have dropped 11%.
“[Having] cornerstones is very helpful, but the second point is that people can still make money on IPOs,” the first banker said, pointing to Chinese auction house Poly Culture, which raised $331 million ahead of its IPO last week with its retail portion oversubscribed by 605 times.
“There’s certainly an area where funds are looking for alpha to get some outperformance,” he said.
ABC International Holdings, BOC International Holdings and CICC are the lead banks on the Harbin deal, while Credit Suisse, CIMB, Deutsche Bank, DBS Bank, Bocom International Holdings, China Merchants Securities, CMB International and Haitong International Securities Group acting as joint bookrunners.
