PSBC’s delayed IPO shows concerns over market liquidity

Even though the flotation for China's largest lender has been postponed until November, it might still prove challenging for the A-share market to swallow.

It has come as no great surprise to the market that Postal Savings Bank of China has delayed its initial public offering on the Shanghai Stock Exchange for the second time to launch on November 28.

China's largest lender by number of branches issued a notice on Wednesday night saying that its PE ratio after IPO will be higher than the monthly average of other listed banks. It will reach 8.93 times compared to 6 times from other state-owned banks. In order to avoid a price drop immediately after IPO, PSBC decided to delay the launch until the end of this month.

The tremendous size of PSBC’s IPO becomes a burden for the bank. The bank planned to raise at least Rmb28.4 billion ($4 billion) on the mainland stock market with an issue price of Rmb5.5 per share.

“This IPO is too big for the Chinese A-share market,” said Wang Jian, a Shanghai-based investment consultant. “This has a direct impact on the capital pool in the stock market. The market is not ready.”

“Bidding for PSBC at this time is like taking a shot,” Yu Zi, CFA in CITIC commented on his Weibo. Yu expects the stock price to drop below the issue price after its IPO. “Unless we have a bull market at that time,” he added.

PSBC’s stock is quite attractive on the Hong Kong Stock Exchange. “The bank’s total return ratio stands at 2.3 times. This is appealing given the relatively low risk of the strategic deposit-rich franchise, and its above-average financial strength profile,” Paul Hollingworth, London-based bank equity specialist, wrote on research platform Smartkarma.

The bank had 39,719 branches in China by the end of 2018, a considerably higher number than those of its peers. More to the point, 70% of those branches are in small towns or in the countryside which gives PSBC a unique advantage and avoids most of the competition with other state-owned banks.

PSBC has a healthy balance sheet. It reported a non-performing loan ratio of 0.82% from January to June this year, much lower than comparable figures of 1.48% at Industrial and Commercial Bank of China and 1.4% at Bank of China.

PSBC’s flotation on the mainland stock market, however, is not proceeding as smoothly as its earlier listing in Hong Kong. The market remains turbulent and the establishment of the STAR Market has absorbed some liquidity.

Whether the mainland stock market can support such a large IPO remains to be seen.


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