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Hong Kong snares world’s largest IPO this year with Postal Savings Bank’s US$8.1 billion offer

Postal Savings Bank of China, which operates more branches in the country than any other bank,plans to raise as much as US$8.1 billion in an initial public offer, choosing to raise capital on the Hong Kong Stock Exchange.

The bank, operating 40,057 branches in mainland China, plans to sell 12.1 billion shares at an indicative price range of between HK$4.68 and HK$5.18 per share, raising between US$7.3 and US$8.1 billion.

The amount raised makes Postal Savings Bank the fourth-largest Chinese bank to raise capital, and places its IPO at number 25 among the list of the world’s biggest stock offers to date, according to Bloomberg data.

The Beijing-based bank is mainland China’s seventh-largest lender, with loans of 2.7 trillion yuan (HK$3.13 trillion).

Postal Savings Bank’s chairman Li Guohua said at a Hong Kong press briefing that the bank will plough 10 per cent of its future net profits into dividends.

“Of course we’ll also take our future business needs into consideration,” Li said. “Our bank’s growth potential is high. We are confident in our future developments.”

Still, the offer attracted limited interest from overseas investors, with few making commitments to buy the shares, fund managers in Hong Kong said on Monday.

The IPO price range values the bank at between 0.93 and 1.02 times its expected book value of 298.9 billion yuan for 2016, as estimated by the six joint sponsors, higher than the valuation of its bigger competitors.

The high valuation is dampening interest among international investors for the IPO, said Sanford C Bernstein’s senior banking analyst Wei Hou.

“For Postal, one time price-to-book is probably a stretch, when China Construction Bank and ICBC are trading at 0.8 times,” Hou said. “These banks report higher profits, are better managed and are seen to be safer banks.”

China Postal Group owned 83 per cent of the bank as at the end of 2015. Other major domestic shareholders include UBS AG with 4.99 per cent, China Life Insurance Co. with 4.87 per cent, and China Telecom Corp with 1.66 per cent.

Ant Financial Services Group, an affiliate of the South China Morning Post’s owner Alibaba Group, owns 1.08 per cent, while Tencent Holdings Ltd owns 0.19 per cent of the bank.

Among international investors, the Canada Pension Plan Investment Board owns 1.20 per cent, JPMorgan owns 0.94 per cent via a Chine investment vehicle, Singapore’s Fullerton Management owns 0.72 per cent, the International Finance Corp owns 0.69 per cent and DBS Bank Holding has a remainder 0.58 per cent.

The Hong Kong Stock Exchange has been the destination for three of the world’s 10-largest IPOs this year, according to Mergermarket’s data.

Order taking for the shares of Postal Savings Bank begins on Wednesday.

The bank will price the offer on September 21 in Hong Kong after a global roadshow to attract investors, and its shares will begin trading in Hong Kong on September 28.