The wait is over: Bank of Shanghai eyes jumbo IPO

More than four years after making its initial listing application, the city commercial bank is finally ready to float its shares on the stock exchange.

Bank of Shanghai unveiled details of its long-awaited initial public offering on Tuesday, targeting as much as Rmb10.7 billion ($1.59 billion) from its local stock market in what could be China’s biggest IPO this year.

The floatation of China’s second biggest city commercial bank by assets has been in the making for more than four years, ever since the lender announced its intention to go public in April 2012. But the plan has stalled several times, partly because of China’s 15-month long IPO suspension between 2012 and 2014, and a further four-month halt between July and November last year.

Bank executives had initially planned to list in both Shanghai and Hong Kong. But they are not settling on a Shanghai listing only, although sources familiar with the bank said it is still likely to push forward a Hong Kong listing later.

According to its regulatory filing on Tuesday, the Bank of Shanghai intends to issue 600.5 million new shares, or 10% of its enlarged share capital, at Rmb17.77 per share. This will value the bank at close to its book value as of the end of last year.

Both institutional and retail subscription will take place on November 12.

Riding the wave

Bank of Shanghai will be hoping to ride on the strong post-listing performance of other city commercial banks that have made themselves public this year.

Bank of Jiangsu, Bank of Guiyang, Wuxi Rural Commercial Bank, Jiangsu Jiangyin Rural Commercial Bank and Jiangsu Changshu Rural Commercial Bank have completed their listings this year. All of them rose by the daily maximum of 10% on their market debut, and have since risen at least 50%.

Such gains were largely a result of the depressed valuations at the time of their IPOs. China’s securities regulator has a tight grip on bank listing valuations to ensure good post-market performance. And the fact that most Chinese banks are either directly or indirectly owned by state entities means few of them argue with the restrictive conditions.

Bank of Shanghai, headquartered in China’s largest financial center, is one of the most profitable lenders among the country’s city commercial banks. The bank has said it expects earnings to grow by as much as 12.01% to Rmb11.1 billion in the first nine months this year.

It is in the middle of a business transformation. Bank of Shanghai is trying to generate a higher portion of its revenue from sources other than interest margins, in large part because Beijing’s low interest rate policy has damaged that business model.

That attempt does seem to be working, though. Last year, Bank of Shanghai’s non-interest income reached Rmb3.4 billion — an increase of 56% from a year earlier and accounted for 22% of total revenue.

Bank of Shanghai is one of the few city commercial banks that has welcomed foreign institutions as strategic investors. HSBC has been a shareholder for 12 years, having purchased 8% of the bank’s stake for Rmb517 million in 2001. The UK lender sold the stake to Spain’s Banco Santander SA in 2013 for about Rmb3.9 billion.

Separately, International Finance Corporation sold its 7% interest in Bank of Shanghai to China Investment Corporation in 2011, ending its 12-year shareholding relationship after investing in the lender in 1999.

The joint bookrunners of the IPO are Guotai Junan Securities and Shenwan Hongyuan Securities. 

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