China Zheshang Bank raised HK$13 billion ($1.69 billion) through an initial public offering in Hong Kong on Tuesday, marking yet another milestone for the country’s banking system in its pursuit of private capital.
Zheshang Bank becomes the ninth of 12 Chinese joint-stock commercial banks -- second-tier lenders that rank just below the so-called Big Four -- to publicly float its shares.
One source familiar with the deal said the final price for the IPO was set at HK$3.96 against an indicative price range of between HK$3.92 and HK$4.12, giving the Zhejiang-based lender a pre-shoe market capitalisation of $8.96 billion.
Zheshang Bank will consequently be the ninth-most valuable Hong Kong-listed Chinese bank, surpassing the likes of China Minsheng Bank and China Everbright Bank.
As expected the bank’s final valuation was set at par to its last year-end book value, in line with last year's Chinese bank IPOs and Bank of Tianjin's $948 million listing, which priced on Monday.
According to syndicate analyst projections, Zheshang Bank will list at 0.85 times its projected end-2016 book value.
Zheshang Bank will have a post-listing free float of 18.85% assuming the greenshoe option is not exercised.
Citic CLSA, CICC, Goldman Sachs, and ABC International were joint sponsors of the IPO.
Banking system reform
Compared to other recently-listed regional banks, Zheshang Bank’s IPO is of higher significance to the development of China’s banking system because it is one of a dozen joint-stock commercial banks -- second-tier lenders that rank below Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China.
Joint-stock commercial banks are recognised as nationwide lenders and own licences to operate cross-regional businesses. They are regarded as systemically important financial institutions and are subject to higher capital requirements and disclosure rules.
Currently, eight joint-stock commercial banks are listed in Hong Kong, Shanghai, and Shenzhen. They comprise Citic Bank, China Merchants Bank, China Minsheng Bank, Huaxia Bank, Shanghai Pudong Development Bank, China Everbright Bank, Shenzhen Development Bank, and Industrial Bank.
The listing of Zheshang Bank will leave only three unlisted joint-stock commercial banks, namely Guangdong Development Bank, Evergrowing Bank and China Bohai Bank.
Bankers familiar with the Chinese banking industry said Beijing’s ultimate goal is to list them all, although the timing will largely depend on each bank’s business performance and internal restructuring process.
One investment banker covering the financial services industry told FinanceAsia that listings of joint-stock commercial banks are important if China’s banking system is to be reformed because they introduce a greater element of market rigour by exposing them to the demands and scrutiny of public shareholders.
That, in turn, could help to make banks more efficient and drive them towards maximising profits, as opposed to state-owned institutions which may have more limited risk appetites. Accelerating the growth of the banking industry is particularly important to China, which is striving to maintain annual economic growth at between 6.5% and 7.0% over the next five years.
Public listings will also require joint-stock commercial banks to be subject to international banking accords and disclosure requirements.
China’s privatisation of the Big Four banks between 2005 and 2010 was an important first step in the opening up the country to foreign investors. They played an important role in helping to fuel China’s average 11.3% GDP growth rate between 2006 and 2010.
