Bank of Tianjin prices IPO near bottom of range

The city commercial bank priced Hong Kong's fourth Chinese bank IPO in less than four months and again leant heavily on cornerstone investors.

Bank of Tianjin priced a HK$7.36 billion ($948 million) initial public offering on Monday near the bottom end of its indicative price range, giving the Chinese lender a pre-shoe market capitalisation equivalent to its book value at the end of last year.

Pricing at that level had been very much anticipated by the market since the majority of Chinese banks are trading below their book values in Hong Kong, hence limiting Bank of Tianjin’s ability to price at a premium to its book. 

Sources familiar with the deal, which is the fourth Chinese bank IPO in Hong Kong on four months, said the final price was settled at HK$7.39 versus an indicative range of HK$7.37 to HK$9.58 per share.

The institutional tranche was approximately 1.5 times covered with most of the demand coming from Chinese institutions, mainly cornerstone investors, while the retail tranche accounted for 7.5% of the total deal and was under-subscribed.

The sale featured 995.5 million shares, 90.9% of which are new shares.

Upon listing, Bank of Tianjin will have a market capitalisation of $5.74 billion and a free float of 16.51%, assuming a 15% greenshoe option is not exercised.

Cornerstone investment totaled $560 million and accounted for 59% of the total deal. The cornerstone investors are China State Shipbuilding Corporation ($270 million), Sinotak ($100 million), Tewoo Group ($50 million), Tianjin Real Estate Group ($50 million), Shandong Tianye Real Estate Development ($30 million), Tianjin Teda Investment ($30 million), and China Huiyuan Juice ($30 million).

As a result, Bank of Tianjin's shareholders will continue to have a strong local flavour; in addition to Tianjin Real Estate and Tianjin Teda, Tewoo Group is wholly owned by the Tianjin State-owned Assets Supervision and Administration Commission. 

They will join three other state-owned enterprises based in northeast China's biggest coastal city -- Tianjin Port, Tianjin Pharmaceutical, and Tianjin Bohai Chemical Industry -- which held 19.45%, 9.8%, and 9.8% of Bank of Tianjin's shares, respectively, before the IPO.

Australian and New Zealand Banking Group, which entered into a strategic partnership with Bank of Tianjin in 2005, was the bank's only foreign institutional investor, with a 14.16% shareholding prior to the listing.

BOC InternationalABC International and CCB International were joint sponsors of the IPO.

How peers are trading

Bank of Tianjin follows Bank of Jinzhou, Bank of Qingdao, and Bank of Zhengzhou, which have all also completed IPOs in Hong Kong since the start of December. 

Shares in the three banks have all traded above their IPO price in that time. Bank of Jinzhou has been best performer and seen its shares rise 29%, followed by 17% for Bank of Zhengzhou, and 4% for Bank of Qingdao. They have all outperformed the Hang Seng Index which is down 9% from the beginning of December.

These banks will likely face their first test in the public market in May when the lockup agreements with cornerstone investors expire. As the free float of these banks increase, those with larger cornerstone investments could potentially have a higher risk of a share price correction.

In November last year Bank of Qingdao sold 72% of its IPO to cornerstone investors, the highest among the three banks listed during that period. Bank of Zhengzhou followed with 57%, while Bank of Jinzhou sold only 15% of the deal to one cornerstone investor at the time of the IPO.

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