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HONG KONG — China’s biggest banks are struggling with a slowing economy, …
HONG KONG — China’s biggest banks are struggling with a slowing economy, rising bad debts and shrinking profits.
So
to raise more than $7 billion in the world’s largest new share sale in
two years, a stodgy Chinese bank has sought a little help from its
friends.
The
Postal Savings Bank of China, a sprawling state-owned lender that is
one of the country’s biggest, on Wednesday priced shares for its initial
public offering at $0.61 each, valuing the new shares at $7.4 billion,
according to a person familiar with the offering who was not authorized
to speak publicly about the pricing. The total proceeds make it the
biggest single I.P.O. anywhere since 2014, when Alibaba’s $25 billion
New York listing set the global record.
But
only a fraction of those shares will be held by nongovernment
investors, as Chinese state-run companies have already pledged to buy up
most of them.
The
big I.P.O. is shining a light on the practice, called cornerstone
investing, of inviting big investors to buy up big chunks of shares
before a company goes public. Though it is less common in other markets,
it has been increasingly used by Chinese state firms going public in
Hong Kong, where government-controlled companies buy up growing numbers
of shares to ensure a smooth offering.
Banks
tend to go along with the practice because it helps get deals done, but
it has come under criticism in the past because it can give plugged-in
investors preferential access to new offerings.
Postal Savings Bank did not respond to requests for comment.
On
the face of it, the huge I.P.O. recalls a period a decade ago, when an
initial wave of offerings by China’s biggest state banks on overseas
stock markets resulted in megalistings attracting eager investors among
foreign funds and Wall Street banks.
Optimism
about China’s banks soared with the country’s double-digit economic
growth rates, and lenders like the Industrial and Commercial Bank of
China, China Construction Bank and the Bank of China surpassed
traditional names like Citigroup and Bank of America to become the
biggest banks in the world by market value.
That
enthusiasm has been replaced by a growing wariness of problems with
China’s traditional growth model, which relied heavily on state-directed
investment to support economic growth. That led to heaping mountains of
debt and rampant industrial overcapacity in areas like mining,
steelmaking and other manufacturing businesses.
Shares
in China’s big banks now trade at less than the reported value of their
assets — a signal that investors do not believe the banks’ books or
that they expect more problem loans will crop up.
With
Postal Savings Bank, more than 75 percent of the shares in the bank’s
I.P.O. were presold to so-called cornerstone investors, big buyers that
get priority by promising not to sell their stakes for six months. All
of the six cornerstone investors in the deal are entities affiliated
with the Chinese government.
That
state support included about $2 billion from China Shipbuilding
Industry Corporation and investments from Shanghai’s main port operator,
a regional airline operator and the country’s main power grid company.
The
postal bank I.P.O. comes amid a relative lull in big listings in Hong
Kong. And the deals that have gone through have increasingly relied on
cornerstones — a sign that underlying demand from retail or small
investors may be lackluster.
For
example, cornerstone investors accounted for nearly 80 percent of the
shares offered in the June listing of CDB Leasing, a state-backed
aircraft leasing company. Last month, Everbright Securities, a
state-controlled brokerage, sold nearly 70 percent of its I.P.O. to
cornerstones.
Last
year, cornerstone investors accounted for a record 41 percent of all
I.P.O.s in Hong Kong, according to figures from Dealogic, a financial
data provider. The previous high was 36 percent in 2012, a difficult
year for new listings.
Cornerstones
last year bought almost $14 billion worth of the $33.6 billion in
shares sold through 49 new listings in the city, according to Dealogic.
The
growing influence of cornerstones in Hong Kong has come under scrutiny,
but so far regulators and lawmakers have taken a relatively hands-off
approach.
In 2013, the city’s stock exchange cautioned underwriting banks against giving cornerstone investors preferential treatment or privileged access to information about a company’s business.
A year later, the Financial Services Development Council, a government advisory body, proposed reforms to the I.P.O. process and the effect that cornerstones have on deal pricing.
“One
undesirable side effect of I.P.O. cornerstone investment is that it
takes the pricing process further away from the normal market forces and
may have a distortive effect on the company’s market value,” the
council wrote in its recommendations.
To date, Hong Kong regulators have not moved to limit cornerstone investing.
Postal
Savings Bank agreed to sell 12.1 billion shares at 4.76 Hong Kong
dollars, near the bottom of the market range. The offering was helped
along by an unusually high number of underwriters — 26 banks in total
worked on the deal.
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