The final size could increase further to $5.92 billion if the 15% greenshoe on the H-share portion of the deal is exercised, but already the deal is by far the largest IPO in the world this year, exceeding the $1.9 billion raised by IrelandÆs Smurfit Kappa Group in March.
A bit more surprising perhaps was the strong demand from institutional investors for this bank, which lacked the qualifier of being one size bigger than the previous Chinese Bank that listed overseas. That had been the case with each new bank IPO starting from Bank of Communications, through China Construction Bank and Bank of China to Industrial and Commercial Bank of China. The only exception to that rule was China Merchants Bank, although it compensated by being the first private sector Chinese Bank to list overseas and by being widely regarded as the best managed and most profitable bank in the Mainland.
Citic Bank, which is the countryÆs seventh largest commercial lender in terms of assets and the second private sector bank to list in Hong Kong, was pushing a strong corporate banking franchise, high growth rates and a high penetration in ChinaÆs affluent Eastern regions, as well as its links to Citic Group as key selling arguments. But banking sources added that the IPO was also being snapped up as a play on ChinaÆs rapid economic growth.
ôIt has a solid equity story, nobody thinks it is going to blow up, it is part of the Citic Group which is highly regarded in China and therefore positive, and most people think it will trade up in the short-term. Add to that the strong liquidity in the market, and you get a pretty convincing buying argument,ö one observer says.
The fact that the top-end valuation on the deal was lowered slightly during the roadshow following the price discovery process on the A-share portion of the deal, may have helped fuel the interest. In any case it allowed the bank to be sold on par with ICBC at 2.8 times this yearÆs book value and at a sizeable discount to China Merchants Bank, which currently trades at a 2007 P/B multiple of about 4.3-4.4 times.
However, at 2.75 times its end 2007 book value (including the greenshoe), Citic Bank commanded a higher IPO valuation than any of the other banks, surpassing even China MerchantÆs price to 2006 book multiple of 2.44 times from September last year.
One source close the deal said that in terms of interest it was probably more important though that all the other Mainland banks have traded up from their IPO prices.
ôInvestors havenÆt been wrong to buy the Chinese banks before and once momentum started building in the book, valuations no longer mattered. It became a case of either you buy the China story or you donÆt,ö the source says.
Still, the subscription numbers were impressive. According to sources, institutional investors put in orders for a combined $180 billion, which meant Citic Bank was the most heavily subscribed Chinese bank on the institutional side. Excluding the retail portion and the shares set aside for four cornerstones and two strategic investors, the remaining institutional tranche was between 85 and 90 times covered and attracted over 1,000 orders, the sources say.
The conversion ratio from the 70 or so one-on-one meetings held with major investors during the roadshow was said to have been more than 90%
The 5% retail portion was about 229 times covered, tying up an aggregate $42 billion and triggering a full clawback. The latter resulted in the retail tranche being increased to 20% of the total offering. In terms of subscription amounts, $42 billion puts Citic Bank on par with real estate developer Country Garden as the second most popular retail offering in Hong Kong after ICBC. The latter attracted a massive $55 billion worth of retail demand.
The price on the H share tranche was fixed at HK$5.86, which marked the top of the HK$5.06 to HK$5.86 range and ensured that bank was able to raise HK$28.7 billion ($3.7 billion) from the Hong Kong-listing alone. The previous range had been set at HK$4.72 to HK$6.17 per share.
The deal is being jointly arranged by Citic Securities, China International Capital Corp, Citigroup, HSBC and Lehman Brothers,
The H-share portion comprised 4.89 billion new H-shares, or 12.8% of the combined issued A- and H-share capital. This included 1.44 billion shares that was be sold to Banco Bilbao Vizcaya Argentaria and the groupÆs Hong Kong-listed bank holding company Citic International Financial Holdings. The two entities bought a combined 29.4% of the deal to prevent their existing stakes from being diluted.
Excluding the sale to the strategic investors, the H-share IPO totaled $2.7 billion.
The bank also sold a combined HK$1.6 billion ($205 million), or 5.5% of the H-share portion, to four strategic investors who were identified as JapanÆs Mizuho Financial Group, Mainland insurers PICC Property & Casualty and China Life Insurance, and ChinaÆs National Social Security Fund.
In addition, Citic Bank sold 2.3 billion A-shares, which were also priced at the top of the revised range of Rmb5.0 to Rmb5.80. 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 was arranged by CICC and Citic Securities.
The lender will start trading in both Hong Kong and Shanghai on April 27.
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