Bank's strategic investors commit up to 60b yuan for their portion of offering

SHANGHAI - China Everbright Bank's IPO shares reserved for strategic investors have been hugely oversubscribed, signaling strong demand for the potentially $2.9 billion offering as stock markets recover.

Thirty strategic investors have committed up to 60 billion yuan ($8.86 billion) for their portion of the 6.1 billion-share offering, the bank said on Wednesday, in what could be the second-largest Chinese offering this year after Agricultural Bank of China's (ABC) $20.8 billion initial public offering last month.

"Everbright Bank is healthier than ABC by many standards and is selling much fewer shares, so if the pricing is reasonable, it would be natural for the lender to attract more interest from potential strategic investors who are often State-owned and cash-rich," said Ye Yunyan, analyst at Galaxy Securities in Beijing.

"The recent rebound in the stock market also helps boost demand for the IPO, as investors get less pessimistic about the long-term prospects of the banking sector."

All major State-owned Chinese lenders have announced massive fundraising plans after the banks, together with smaller lenders, lent a record 9.6 trillion yuan last year to support Beijing's economic stimulus and as the banking regulator tightened capital rules to pre-empt a rise in industry bad loans.

The IPO is Everbright Bank's second major fundraising since August last year. The bank raised 11.5 billion yuan in a private placement but it could still face a big capital shortfall without the public offering.

Its capital adequacy ratio, a key measure of lenders' ability to absorb potential losses, stood at 10.39 percent at the end of last year, compared with the 11 percent minimum required for mid-sized listed lenders.

Everbright hopes to price the IPO at between 3 and 3.2 yuan apiece, two people familiar with the deal told Reuters on Monday.

Assuming the shares were sold at 3 yuan apiece, the strategic placement in the IPO was about 6.7 times oversubscribed, based on a Reuters calculation.

Negative impact

Everbright, controlled by Central Huijin, a unit of China's $300 billion sovereign wealth fund, plans to sell 6.1 billion yuan-denominated A shares, and could expand its IPO by 15 percent to 7 billion shares through an overallotment.

It is placing half the total number of IPO shares to strategic investors who include its long-term customers, shareholders and some reputable Chinese companies.

Everbright Bank Chairman Tang Shuangning, a former vice-chairman of the China Banking Regulatory Commission and a well-known calligrapher, had said the strategic placement and the over-allotment option were designed to limit any negative impact that the IPO could have on the stock market.

Everbright Bank this week kickstarted investor roadshows in four major Chinese cities, including Beijing and Shanghai. The bank aims to list on the Shanghai Stock Exchange on Aug 18.

The bank is scheduled to unveil the indicative price range for the IPO on Aug 6 and the final pricing will be decided on Aug 11.

Everbright Bank operates 483 branches across the country. It had an asset size of about 1.2 trillion yuan as of the end of 2009.

The lead underwriters for the IPO are China Jianyin Investment Securities, Shenyin & Wanguo Securities Co, and China International Capital Corp, in which Morgan Stanley holds a stake that it is planning to sell.

Reuters

(China Daily 08/05/2010 page17)