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| Shares of Industrial Bank gain 53% on debut |
SHANGHAI, Feb. 5 -- Shares of Industrial Bank Co, part-owned by a unit of HSBC Holdings Plc, surged 53 percent on its debut in Shanghai today after the US$2 billion offer attracted record bids from investors in China, according to Bloomberg.
Industrial Bank's yuan shares changed hands at 24.30 yuan (US$3.14) in Shanghai at 9:36am, up from the 15.98 yuan sale price. The share increase values the Fuzhou-based bank at US$15.6 billion, making it the nation's sixth-biggest.
"The momentum is largely driven by excess liquidity in the domestic stock market," said Wang Yihuan, a banking analyst at China Asset Management Co in Beijing, which manages about 58 billion yuan of assets including shares of Industrial Bank.
Chinese banks including Industrial & Commercial Bank of China Ltd and Bank of China Ltd saw their domestic shares surge after selling stock in 2006, enticing smaller competitors to follow suit. The benchmark Shanghai and Shenzhen 300 Index more than doubled in the past year as the end of a moratorium on share sales helped revive investor interest.
The nation's banks are raising funds to comply with a government requirement to bolster their finances and to help fend off foreign competitors, which in December were allowed to begin taking yuan deposits. Six banks have sold a combined US$49 billion of IPO shares since June 2005.
Industrial Bank raised 16 billion yuan after selling 1 billion shares, or a fifth of its enlarged capital. Fund managers and individuals ordered more than 70 times the stock on offer, or 1.16 trillion yuan of shares. That surpassed the 700 billion yuan drawn to the record share sale by Industrial & Commercial Bank of China Ltd, now the world's third-biggest bank by market value.
A four-year investment boom has powered China's annual economic expansion of 10 percent, double the global average, fueling loan growth and improving banks' profitability.
Industrial Bank faces challenges in maintaining profit growth, Wang said, after net income jumped 40 percent to 2.5 billion yuan in 2005 from a year earlier and was 1.75 billion yuan in the first half of 2006.
"Fundamentally, this is not a stock worth holding for long because its strategy is very short-sighted," she said. The company bolstered profits partly by investing funds borrowed on the interbank market at a better rate in money markets.
The money obtained on the interbank market, through which financial institutions exchange funds for short-term periods, was put into higher-yielding government bonds. As of June 30, the bank had 144 billion yuan of outstanding bond investments, or 27 percent of its total assets. The ratio was 11 percent in 2003.
The strategy could fail should the cost of capital rise in the interbank market, Wang said. Also, Industrial Bank lacks distribution outlets to attract enough deposits and doesn't have a clear plan to develop fee-income services, she said.
The bank, established in 1988, has a network of 338 branches, one-fiftieth the size of ICBC's. The company has compensated somewhat through online banking that helped it achieve average lending growth of 24 percent over the past three years.
The bank's outstanding loans rose to 292.3 billion yuan as of June 30. The bad-loan ratio stood at 2.01 percent, lower than the 2.81 percent average of its peers. Assets reached 532.2 billion yuan.
Industrial Bank now trades at about 3.4 times its estimated 2007 book value. That compares with 3.2 times for ICBC and 2.9 times for Bank of China, using their current stock prices on the Shanghai exchange.
Industrial Bank said it will use the sale proceeds to boost its capital adequacy ratio above the minimum regulatory requirement of 8 percent from 7.17 percent as of June 30. It will also expand into new products and businesses, open more branches and upgrade its computer network.
HSBC's Hang Seng Bank unit owns 12.78 percent of Industrial Bank after the completion of the share sale. International Finance Corp, the World Bank's private investment arm, has a 3.2 percent stake and a unit of Government of Singapore Investment Corp holds 4 percent.
Bank of China International is managing the sale.
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