While no doubt important as a confidence builder, the four cornerstones will together take up only about $200 million, or less than 7% of the offering at the bottom of the range û much less than in other Hong Kong listings of equivalent size.
However, this allocation comes on top of the 29% of the deal that will be bought by the bankÆs two strategic investors û Spanish lender Banco Bilbao Vizcaya Argentaria and the groupÆs Hong Kong-listed bank holding company Citic International Financial Holdings - to prevent their existing stakes from being diluted, suggesting the deal is well anchored even before the bank starts the official roadshow today (April 10).
Few observers believe such pre-agreed support is necessary, however, given the continuing demand for Mainland banks as a proxy for the rapidly growing Chinese economy. Citic Bank is also a leading corporate banking franchise and one of the fastest growing private sector national banks in China with a strong foothold in the countryÆs affluent Eastern provinces. It is the countryÆs seventh largest commercial bank with total assets of Rmb706 billion ($91 billion) and 446 branches.
Still, as a listed entity in Hong Kong the bank will be competing with the larger state-owned banks (Industrial and Commercial Bank of China, Bank of China and China Construction Bank and Bank of Communications) as well as ChinaÆs largest privately-owned lender û China Merchants Bank û for investorsÆ attention.
While the initial public offering will be the largest in Hong Kong since ICBCÆs massive $21.9 billion offering in October last year, it will be the first Mainland bank IPO (aside from CMB) that cannot rely on size as a key marketing argument. So far, all the Mainland banks that have come to market in Hong Kong have been bigger than the already listed ones, making it almost ôcompulsoryö for the big asset managers to buy. CMB for its part stood out by being the first private sector bank to list in Hong Kong and is also widely regarded as the most profitable Mainland bank.
The fact that it is neither first, nor the biggest, seems to have set its mark on the valuation, as sources say Citic Bank will offer its H-shares to investors at a post-money price-to-book multiple ranging from 2.48 to 2.81 times. At the top end, this would be on par with ICBC and a sizeable discount to BoCom at 3.3 times and CMB at 3.9 to 4 times. Investors tend to view the latter two as the most appropriate comparables, as they are closer in size, observers say.
Aside from the strong profitability, CMBÆs valuation also benefits from the bankÆs early mover advantage within the retail banking and wealth management business and it is unlikely that Citic Bank would deserve that kind of valuation in the near-term, observers say. However, Bocom is definitely seen within reach once the IPO discount has been ironed out, and Citic Bank deserves to trade at a premium to the big state-owned banks given their less nimble structures and lower profit growth, the argue. Bank of China is already behind with a P/B multiple of about 2.1 times.
Citic Bank has set its H-share price range at HK$4.72 to HK$6.17 per share.
This portion of the deal will comprise 4.89 billion new H-shares, including 1.44 billion shares that will be sold to BBVA and CIFH. BBVA currently owns a direct 4.8% of the bank, while CIFH has a 15.2% stake. However, BBVA also owns 14.6% of CIFH and has an option to increase its direct stake in Citic Bank to 9.9% within three years as the two cement their strategic relationship further.
The H-share sale, which will account for 12.8% of the combined issued A- and H-share capital, also has a greenshoe of 15%, which could boost the H share proceeds to $4.4 billion and the total deal size to $6.3 billion. If the greenshoe is fully exercised the H-share free-float will increase to 14.4%.
Excluding the sale to the strategic investors, the H-share IPO will total between $2.1 billion and $2.7 billion. The deal is being jointly arranged by Citic Securities, China International Capital Corp, Lehman Brothers, Citigroup and HSBC.
Five percent of the total H-share offering of 4.89 billion shares will be earmarked for Hong Kong retail investors who can start to subscribe on Thursday (April 12). The size of the retail offering could increase to 20% if a full clawback is triggered.
The number of shares and percentages related to the H-share offering have changed marginally from earlier information provided in a preliminary listing document published on the Hong Kong stock exchange Web site as sources said the company had to tweak the numbers to comply with Mainland requirements related to the size of the freefloat. However, none of the changes are material.
Citic Bank is also offering 2.3 billion A-shares at a price between Rmb4.66 and Rmb6.10 apiece. (The price range is the same as for the H-shares, adjusted for the exchange rate.) The A-shares will trade in Shanghai and will account for 6.0% of the bank, or 5.9% in case the H-share greenshoe is exercised. The A-share portion of the sale is arranged by CICC and Citic Securities.
According to sources, the four strategic investors are JapanÆs Mizuho Financial Group, Mainland insurers PICC Property & Casualty and China Life Insurance, and ChinaÆs National Social Security Fund. They will buy a combined HK$1.6 billion ($205 million).
The final price will be determined after the US close on April 19 and the trading debut is scheduled for April 27.
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