Bank of Qingdao prices $607m HK IPO

Proceeds from the IPO will help the Shandong-based lender catch up with other city commercial banks in terms of capital adequacy.

Regional Chinese lender Bank of Qingdao raised HK$4.65 billion ($607 million) from an initial public offering in Hong Kong on Thursday to help bolster its sub-par capital adequacy ratios.

The bank, which is based in the northeastern coastal province of Shandong and is backed by Italy's Intesa Sanpaolo, sold 900 million shares. A group of 18 shareholders raised a further $61 million through a concurrent sale of 90 million shares, according to the bank’s IPO prospectus. 

Final pricing was fixed at the bottom end of Bank of Qingdao's HK$4.75 to HK$5.21 indicative price range, which came as little surprise after some institutional investors were told the bank's cornerstone investors would all subscribe at the lowest price.

The Bank of Qingdao IPO is yet another example of a highly pre-sold Hong Kong deal after six cornerstone investors together committed $416 million, accounting for 72% of the total deal.

The largest cornerstone investment was a $122.5 million order from LRC Belt and Road Investment, an entity partially held by Soul Htite, co-founder of Chinese peer-to-peer lending website

One source familiar with the situation said the retail portion was undersubscribed but the shortfall was filled by the institutional tranche which was slightly oversubscribed.

As expected, the order book comprised mainly domestic Chinese institutions although there were a handful of international funds as well.


Despite the bottom-end pricing, which values Bank of Qingdao at 0.87 times projected book value for the 2016 financial year, it is still at a premium compared with most other Chinese city commercial banks.

As a result Bank of Qingdao will have the second-richest valuation of the five city commercial banks already listed in Hong Kong, trailing Shengjing Bank which trades at 1.07 times 2016 price-to-book.

Heilongjiang-based Harbin Bank is the cheapest city commercial bank listed with a price-to-book ratio of 0.58 times, while Bank of Chongqing, Chongqing Rural Commercial Bank, and Huishang Bank trade at 0.61 times, 0.67 times, and 0.69 times their projected book values next year, respectively.

Chinese bank valuations are depressed due to the rise in non-performing loans as Chinese economic growth slows. Bank of Qingdao, for example, saw its non-performing loan ratio rise to 1.19% at the end of June from 1.14% six months earlier. That's the highest among the city commercial banks listed in Hong Kong, which averaged 0.77% as of the end of last year, but lower than the average 1.25% ratio for all commercial banks in China.

One positive for Bank of Qingdao is its relatively fast total loan growth compared. Its loan book grew by 11% to Rmb70 billion ($10.9 billion) in the first six months of 2015, compared with sub-10% growth for most of its peers.

Refilling the coffers

The bank will use the IPO proceeds to strengthen its capital base, which is relatively weak compared with its peer group.

Bank of Qingdao’s tier-1 capital ratio was 9.72% as of the end of last year, at least one percentage point lower than all other listed regional banks in China. Its total capital ratio of 10.75% was also at least two percentage points lower than its peers, based on their financial statements.

A stronger capital base will also help the bank to expand its business. Corporate financing needs are expected to rise in Shandong province because of its strategic importance to China’s One Belt, One Road initiative, a banker familiar with the situation told FinanceAsia earlier.

The eastern city of Qingdao, which faces South Korea across the sea, is a starting point for a number of major routes proposed under the programme, including the New Eurasian Land Bridge Economic Corridor, which connects eastern China to central Europe.

The shares will start trading on December 3.

Citic CLSA and Goldman Sachs were joint sponsors of the IPO.

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