More IPOs line up for the China A-share market

Military uniform contractor Jihua Group starts bookbuilding, while China Everbright Bank's proposed IPO is finally ready to be reviewed by the regulators.

China's stockmarkets saw more money raised from initial public offerings (IPOs) than any other markets in the world in the first half this year and will continue to embrace an influx of new share offerings in the second half, as indicated by a series of share sale plans.

The proposed listings are likely to proceed, market watchers say, even though the benchmark Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 26% in the first half, making it one of the worst performers in the world. The decline came as Beijing stepped up measures to curb inflation and property speculation.

While the market is still closely watching the trading in newly listed Agricultural Bank of China (ABC), investors will need to get their heads around yet another Mainland lender -- China Everbright Bank -- which plans to offer 6.1 billion A-shares in a deal that analysts say could allow it to raise around $2.9 billion ahead of a Shanghai listing.

The China Securities Regulatory Commission (CSRC) will review the bank's IPO today, the commission said in a statement posted on its website late last week.

Everbright Bank will sell 15% of its enlarged share capital, which could extend to 17% if a 15% greenshoe option is fully exercised, the bank said in a preliminary IPO prospectus filed on the same website. Including the shoe, the bank may sell approximately 7 billion shares.

It didn't say how much it aims to raise but Liu Jun, a banking analyst at Changjiang Securities, predicted the bank may raise around Rmb20 billion ($2.9 billion) by offering its shares at around 1.6 to 1.7 times its projected book value. If successful, this could be the second largest bank IPO in China so far this year following ABC's $19.2 billion offering. The lender has hired China International Capital Corp, Shenyin & Wanguo Securities and China Jianyin Investment Securities to arrange the deal.

Everbright Bank started moving towards an IPO nearly a decade ago and 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 regulators; and then was held up by ABC's massive share sale, which was viewed as the top priority for Beijing. But the bank hasn't just been biding its time during the delay. Last year, it replenished its capital reserve via a private placement, which should help improve its attractiveness for potential IPO investors.

Everbright Bank recorded a net income of Rmb7.6 billion in 2009, representing a 4% increase year-on-year. As of the end of December last year, it had a total capital adequacy ratio (CAR) of 10.39% and a tier-1 capital ratio of 6.84%. Its non-performing loan ratio was 1.25%.

Separately, China's largest military uniform and boot manufacturer, Jihua Group, will start bookbuilding for a Rmb3.2 billion ($469 million) IPO in Shanghai today, according to an announcement in the Shanghai Securities News. The company is looking to sell 1.16 billion A-shares, or 30% of its enlarged share capital.

Jihua, which has a market share of 75% in military goods production in China and one big customer in the form of the People's Liberation Army, said in April it plans to use the proceeds for research and development into uniform design and to fund boot production. It has appointed UBS Securities as the sole bookrunner.

PricewaterhouseCoopers (PwC) predicts the funds raised through IPOs in Shanghai and Shenzhen will reach Rmb500 billion in 2010. The total number of new listings may reach 300, including 25 in Shanghai and 275 on the Shenzhen board. This would make China number one globally, both in terms of funds raised and the number of new listings, PwC said earlier this month.

The total number of new share offerings on the mainland stock exchanges in the first half of this year is 176, compared with no listings in the same period last year. The IPO funds raised amounted to Rmb212.7 billion, which is greater than the Rmb187.9 billion worth of funds raised from IPOs in 2009 as a whole, according to PwC.

Three of the 10 largest IPOs in the world during the first half were A-share offerings by Chinese companies, namely Huatai Securities' $2.3 billion sale, China First Heavy's 1.67 billion offering and a $1.5 share sale made by China XD Electric, data from Dealogic show. Japanese company Dai-ichi Life Insurance tops the list with its $11.14 billion IPO, followed by Korea's Samsung Life Insurance, which raised $4.4 billion in an IPO in April. ABC priced its IPO in the first week of July.

Meanwhile, Hong Kong maintained its status as one of the largest IPO markets by fundraising size in the first half with a value of HK$50.3 billion ($6.4 billion), representing a 186% increase compared to the same period last year, according to PwC.

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