Huishang Bank raises $1.19 billion from IPO

The Chinese lender fixes the price towards the low end of the range, while Bank of Chongqing closes just below the IPO price in its trading debut.
Huishang Bank attracted some interest from international institutions, and one source said there were more than 100 accounts in the order book.
Huishang Bank attracted some interest from international institutions, and one source said there were more than 100 accounts in the order book.

Huishang Bank has raised HK$9.21 billion ($1.19 billion) from its Hong Kong initial public offering after fixing the price slightly above the bottom of the range at HK$3.53.

The city commercial bank, which is based in the Anhui province just west of Shanghai, was offering the shares at a price between HK$3.47 and HK$3.88.

Pricing coincided with a somewhat muted debut by Bank of Chongqing on Wednesday. The Chinese lender dropped to a low of HK$5.91 early in the session but then edged slightly higher and at one point in the afternoon it went through the HK$6 IPO price to reach HK$6.03. It closed down 1 HK cent at HK$5.99.

Bank of Chongqing fixed its IPO price just below the mid-point of the range for a total deal size of $548 million.

A negative trading debut is never a good thing for overall sentiment but for the sake of the still quite heavy pipeline of potential Hong Kong IPOs this year, it is even more important that investors do not lose money on new deals right now. Indeed, sources noted that Goldman Sachs, which acted as the stabilisation agent, did buy back some of the greenshoe shares to help support the price even if the trading volume was not too heavy.

The 168.5 million shares that changed hands during the day accounted for about 23.8% of the total IPO, or close to 30% if you exclude the shares taken up by existing shareholders Dah Sing Bank and Chongqing Yufu Assets Management (Group), which will be locked up for three years.

Bank of Chongqing and Huishang Bank are the first two Chinese banks to go public in Hong Kong since Chongqing Rural Commercial Bank listed in December 2010 after raising $1.35 billion. Both of them were heavily placed with China-based corporate investors and high-net-worth individuals, however, reflecting the fact that they had to be offered at a fairly aggressive valuation versus their listed peers.

Huishang Bank did attract some interest from international institutions, however, and one source said there were definitely more than 100 accounts in the order book. The bank even got a few orders from Europe and the US, suggesting that management’s decision to visit both these regions during the roadshow may have paid off. Most of the institutional tranche was taken up by Asia-based accounts, however, and, like Bank of Chongqing, the deal was fully covered by cornerstones and anchor investors on day one.

About 49% of the deal was taken up by six cornerstone investors, one more than was flagged by sources just before the launch of the institutional bookbuilding on October 29. Their combined investment of $587 million was led by property developer Vanke, which bought $402 million worth of shares. Chow Tai Fook, the private investment arm of New World Development chairman Cheng Yu Tung, took about $26 million worth.

The 10% retail portion was more than 10 times covered, according to one source. This means that the Hong Kong public committed at least $1.3 billion towards the deal, which is a pretty encouraging sign. It was not enough to trigger a clawback, however, which would have taken an oversubscription ratio of more than 15 times.

Huishang Bank sold approximately 2.61 billion H-shares, of which 95.7% were new. The rest were secondary shares that were sold on behalf of the National Social Security Fund (NSSF).

The base deal accounts for 24.5% of the enlarged share capital, but there is a 15% greenshoe that could increase the deal size to 27.2% of the company and the total proceeds to about $1.37 billion. The greenshoe has the same split between new and existing shares as the base deal.

The final price of HK$3.53 translates into 0.95 times the projected book value at the end of 2013 and around 1.05 times its latest audited book value at the end of June. This is a fairly substantial premium to Chongqing Rural Commercial Bank (CBRC), which is currently trading at a 2013 price-to-book multiple of 0.78 times, according to Bloomberg data.

CBRC is considered one of the closest comparable because of its size and the fact that it too is a city commercial bank.

Huishang Bank has 199 outlets across the 16 cities in the Anhui province as well as in Nanjing in the neighbouring province of Jiangsu. Like Bank of Chongqing, it focuses primarily on small and medium-sized enterprises. At the end of June, it had total assets of Rmb409.59 billion, which was up 26% from six months earlier.

The shares will start trading on November 12.

The deal was led by BOC International, Citic Securities, Haitong International, JP Morgan, Morgan Stanley and UBS, as the joint global coordinators. The deal also had 13 additional bookrunners, bringing the total number of bookrunners to 19.

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