IPOs: Investors Cool on Postal Bank, Lufax Delays Listing

Bottom line: Weakening sentiment towards Postal Bank’s IPO reflects concerns about China’s economic slowdown, while Lufax’s choice of Hong Kong for its IPO should help to attract more international investors.

Lufax IPO bound for HK

What’s likely to be this year’s biggest IPO by Postal Savings Bank of China is limping ahead, with word the ultra-conservative lender is set to sign up $6 billion in commitments for its Hong Kong offering. But western investors are reportedly staying away from the deal, worried over high valuations and China’s sputtering economy.

Meantime, another financial IPO by leading P2P  lender Lufax is back in the headlines, with word the listing probably won’t happen until next year and will occur in Hong Kong. That news marks a flip-flop from reports earlier this week, when media cited Lufax’s largest backer saying plans were still on track for an IPO this year, with Shanghai as the preferred listing location.

Both headlines have a common theme, namely that nearly everyone remains skittish about China’s economy. That skittishness is prompting China’s securities regulator to remain cautious about approving new IPOs, worried that too many new offerings could pressure a delicate market. At the same time, serious western investors are avoiding the Postal Bank IPO and are possibly are lukewarm on Lufax due to concerns that a sharply slowing economy could be put a crimp on both companies’ business.

Let’s begin our IPO round-up with Postal Savings Bank, one of China’s most conservative lenders and the last major national bank to go public. Postal Bank has been working on this offering for quite a while, with reports that the IPO was preparing to launch as early as late last year.

But things haven’t proceeded smoothly. First the deal was delayed by a sharp sell-off on China’s domestic markets at the start of the year, and now foreign investors who were previously bullish on the company are growing more conservative. As a result, the listing’s current size is pegged at about $8 billion, down from as high as $20 billion when news of the deal first surfaced last year.

Now the latest reports are saying Postal Bank is near a deal that would see a group of mostly domestic cornerstone investors purchase up to $6 billion worth of its IPO shares, or about three-quarters of the total. (English article) A source working on the deal said the figures aren’t final yet, but that cornerstone investors are likely to ultimately buy 60-80 percent of the IPO shares.

Made in China

Most of those cornerstone investors are Chinese companies like China State Shipbuilding Corp, which has pledged to buy $2 billion worth of shares. Foreign investors had earlier expressed bigger interest in the bank, whose conservative lending position means it’s likely to feel less impact from China’s ballooning bad debt crisis that more traditional lenders. But the foreign buyers are becoming more worried as China’s economic outlook gets cloudier, with the result that their interest is fading in this deal.

Next there’s Lufax, China’s largest P2P lender, whose top shareholder said earlier this week that the company was on track for previously announced plans for an IPO by the end of this year. (previous post) Now it seems that assessment from financial services giant Ping An was overly optimistic, with Lufax’s CFO now saying the company expects to make its trading debut in Hong Kong by the end of next year.

CFO Zheng Xigui didn’t rule out an IPO this year, but media are interpreting his latest comments as indicating an offering is most likely next year. Zheng also explained the decision to go to Hong Kong was prompted by China’s recent decision to delay or even scrap a new board in Shanghai for companies from strategic emerging industries. Lufax and others like Ant Financial were originally hoping to list on that board.

At the end of the day, this kind of delay isn’t too uncommon for such a large IPO, which is likely to raise more than $1 billion. The choice of Hong Kong over Shanghai also shouldn’t be a major handicap, since it will boost participation by foreign investors for an offering that could do relatively well due to its status as the first by a P2P Chinese lender.

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