China Everbright Bank targets up to $3.2 billion in Shanghai IPO

The mid-size bank has set a lower-than-expected price range as worries remain that the downturn in China’s equity markets will continue in the coming months.

China Everbright Bank has set a lower-than-expected price range for its up to Rmb21.7 billion ($3.2 billion) Shanghai initial public offering, as worries remain that the downturn in China’s equity markets is likely to continue for some time.

The offering price range was set at between Rmb2.85 to Rmb3.1 a share, the bank said in a stock filing to the Shanghai Stock Exchange yesterday. The prices value the lender’s shares at 1.47 times to 1.57 times book value based on its projected earnings in 2010, which is lower than analyst estimates of 1.6 times to 1.7 times and a big discount compared with its peers listed on the Shanghai bourse -- they are trading at around two times or more book value.

Everbright Bank is said to have trimmed the share sale by 30% over concerns about the country’s volatile markets. After all, the benchmark Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 26% in the first half of 2010.

It seems that timing hasn’t favoured the lender’s IPO. Everbright Bank initially filed a listing application in June 2008. The plan was first halted by a 10-month suspension on new equity listings imposed by the Chinese regulators. When it decided to resurrect the sale this year, it got muscled out by competitors who wanted to replenish cash reserves.

So now Everbright Bank, a mid-size player, is trying to pull off a sale in the same quarter as Agricultural Bank of China (ABC), one of the Big Four. Since Beijing views ABC's $19.2 billion offering as a top priority among all other banks’ fundraising plans, Everbright is standing in ABC's shadows. Indeed, some analysts worry that market demand for the mid-size bank may be weak because ABC’s dual listings in Shanghai and Hong Kong have absorbed so much liquidity and the number of investors that want to put money into banks is limited.

However, others are optimistic because Everbright Bank is healthier than ABC by many measures and the offering price is fairly attractive.

The bank plans to sell 6.1 billion A-shares which will allow it to raise between Rmb17.38 billion and Rmb18.9 billion. The offering could expand to 7 billion shares if a 15% greenshoe option is fully exercised, in which case the company could raise Rmb19.95 billion to Rmb21.7 billion.

Some 1.55 billion shares, or 25.4% of the offering (pre-shoe), are earmarked for institutional investors, and which have already been oversubscribed by 17.2 times, according to the stock filing.

The offering shares will be priced on August 11 and the trading debut is scheduled for August 18. China International Capital Corp, Shenyin & Wanguo Securities and China Jianyin Investment Securities are arranging the deal.

The bank aims to double its profit in three years’ time and that target may be achieved earlier, its board secretary Lu Hong said at an online roadshow yesterday. It also plans to add 80 to 100 outlets each year during the next two years, on top of the existing 514 outlets.

Everbright Bank said it has no near-term plan to list shares in Hong Kong.

¬ Haymarket Media Limited. All rights reserved.
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