China Minsheng Banking Corp fell a disappointing 3 percent in its Hong Kong debut on Thursday after raising $3.9 billion in the world's fifth largest IPO this year, underscoring how sentiment for Chinese banks has soured recently.
Chinese banking stocks have come under pressure on concerns of potential cash calls as Beijing may hike larger state lenders' capital adequacy ratios or reserve requirements next year to cool a lending binge.
Recent high IPO volume in Hong Kong -- this week alone has seen a flurry of trading debuts -- as well as reports of Chinese banks discussing fundraising pressured the first day of trading for Minsheng, China's seventh-largest listed bank, said Chen Xingyu, an analyst at Phillip Securities Research in Shanghai.
Considering the number of IPOs in recent weeks, Minsheng would become less attractive to investors in terms of pricing as there are a number of choices in the market, Chen said.
Minsheng, founded by 59 private enterprises in 1996, including New Hope Group founder and billionaire Liu Yonghao, attracted well known investors including George Soros and Singapore state fund Temasek [TEM.UL] to the IPO.
Its shares ended on Thursday at HK$8.79, compared with an IPO price of HK$9.08, which was around the mid-point of its indicated range. The bank's drop also weighed on the broader market, with the Hang Seng Index .HSI losing 1.8 percent.
Dented by the weak Hong Kong debut, Minsheng's Shanghai stock fell 5.7 percent.
Minsheng Bank's listing will grow to $4.5 billion if it exercises in full an overallotment option, as is expected, taking it to fourth place from fifth in the global IPO rankings. [ID:nSP534106]
But Minsheng's capital position was seen as relatively sound.
Minsheng does not have any capital raising plan in three years, the bank's chairman Dong Wenbiao told reporters at a Hong Kong listing ceremony on Thursday.
The bank's capital adequacy ratio is rising to 12 percent after the IPO from 8.57 percent as of end-September.
The proceeds from the IPO would have a positive impact on the bank's capital adequacy ratio and cash flow over the short term, said Phillip Securities' Chen.
Minsheng is China's first non-state lender and the seventh mainland bank to list in Hong Kong. The government or state-owned enterprises are the controlling shareholders for most of China's listed banks, but Minsheng has almost no government holding.
It sold 3.32 billion shares, or 15 percent of its enlarged share capital, and plans to use the IPO proceeds to strengthen its capital base and grow its business.
A spate of recent Chinese IPOs in Hong Kong racked up double-digit first-day trading gains, but shaky recent markets and the sheer size of the deal had been expected to limit Minsheng's near-term upside.
Minsheng's post-market performance will not affect the sentiment of upcoming IPOs, due to an abundance of liquidity in the market, said Steven Leung, director of institutional sales at UOB-Kay Hian.
China Pacific Insurance, China's third-largest life insurer, plans to raise at least $3.4 billion in Hong Kong by the year-end.
Minsheng priced its shares at 1.7 times forecast book value for 2010. By comparison, Bank of Communications, China's No. 5 lender, traded at about 2.17 times, while China Merchants Bank and CITIC Bank traded at 2.75 times and 1.66 times, respectively, according to a UBS note.
The Hong Kong retail tranche was about 159 times subscribed. The popularity triggered the clawback option, raising the retail portion to 20 percent from 5 percent of the total offering.
Investors were attracted to Minsheng Bank as a way of tapping China's surging economic growth, and a roster of investors also boosted confidence.
Besides Soros and Temasek, Tiger Fund and China Life Insurance Co committed to buying Minsheng's shares from the institutional portion of its IPO, sources said earlier.
However, Hopu Investment Management, a highly influential China-focused private equity fund, decided to pull out of plans to invest up to $1 billion at the eleventh hour due to concerns the price was too high, sources told Reuters.
Minsheng Bank operates 29 branches and 387 sub-branches domestically, with total assets at end-September of 1.4 trillion yuan ($205 billion).
The mid-sized lender forecasts 2009 net earnings will jump at least 39 percent to 11 billion yuan ($1.61 billion).