Bottom line: A new IPO from Postal Savings Bank will price and debut strongly thanks to its conservative stance, while another offering from Orient Securities could also do moderately well due to its small size.
Two financial institutions are lining up to launch IPOs in Hong Kong this week, led by what’s likely to be the biggest offering this year by China’s stodgy Postal Savings Bank, whose listing could raise up to $8 billion. In a far smaller deal, brokerage Orient Securities is also set to announce a HK$1.15 billion ($174 million) IPO deal as soon as today, in what looks like a slightly desperate bid for cash following its much larger Shanghai listing last year at the height of China’s stock market boom.
The Postal Savings Bank IPO has a long history, first popping into the headlines as early as 2014 when media reported it was looking to raise up to $4 billion. That amount suddenly ballooned to up to $25 billion early last year, when China’s stock markets were in the midst of a rally that saw the major indexes more than double in less than a year before crashing during the summer.
That crash probably prompted Postal Savings Bank to temporarily shelve the IPO plan, which is now resurfacing with the latest fund-raising target of $7-$8 billion. (English article; Chinese article) The latest reports say Postal Bank may file for the offering later this week, becoming the last of China’s major banks to make an IPO.
Postal Bank is China’s largest bank by network, since it has branches in most of the nation’s thousands of post offices. It’s also one of the nation’s most conservative banks, since it was originally set as a place for people to park their money rather than as a traditional commercial lender. Accordingly, it now looks like one of the nation’s most attractive banks, since most of its peers are sitting on huge piles of bad loans made during China’s massive economic stimulus program at the height of the global financial crisis.
Postal Bank already counts a number of big names among its backers, including Alibaba-affiliated (NYSE: BABA) Ant Financial, Internet giant Tencent (HKEx: 700) and insurance giant China Life (HKEx: 2628; Shanghai: 601628; NYSE: LFC). I expect that many foreign institutional investors who want exposure to China’s banking sector but worry about bad loans at other lenders will also buy into this IPO, making it moderately successful.
Orient’s Modest Target
The same probably won’t be true for Orient Securities’ IPO, whose piddly size probably reflects low investor demand the company is anticipating. The $174 million fund-raising target is about 10 percent the size of the far larger $1.6 billion that Orient Securities raised in its Shanghai IPO last year, at the height of a rush in new listings that all did quite well during China’s overcharged stock market rally. (previous post)
The latest reports are saying that Orient Securities is expected to file for its IPO later today, with a price range of HK$7.85 to HK$9.35. (English article; Chinese article) They point out that a number of other Chinese brokerages are also lining up for Hong Kong listings, including Everbright Securities, China Merchants Securities and China Securities.
All of these brokerages are probably quite disappointed that they didn’t make their listings before last year’s stock market crash, since trading volumes since then have slowed sharply. That’s important for all of these companies since they make a big portion of their money from trading fees, which are likely to remain weak for the forseeable future.
At the end of the day, I would expect the Postal Bank IPO to probably price near the top of its range and debut with a moderate rise, even though its backers are valuing it at a higher level than most traditional banks. The Orient Securities offering is likely to also do moderately well, mostly due to its small size that means it can call on its friends to buy up most of the shares if interest from other investors is weak.
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