The lending unit of state-controlled China Everbright Group is offering 5.08 billion new shares at HK$3.83 to HK$4.27 apiece, according to a prospectus handed out at a press conference in Hong Kong today. Beijing-based Everbright Bank has traded in Shanghai since 2010.
China’s 11th-largest lender by market value joins Huishang Bank Corp. and Bank of Chongqing Co. in turning to Hong Kong’s equity market ahead of requirements for the nation’s lenders to hold more capital. Regulators are pushing banks to strengthen their balance sheets as concern mounts that slowing economic growth may lead to an increase in bad debt.
Everbright’s capital adequacy ratio stood at 9.65 percent as of Sept. 30. The China Banking Regulatory Commission’s rules require banks such as Everbright, which isn’t classified as systemically important, to have minimum capital buffers of 10.5 percent before the end of 2018.
The price range represents a 4.5 percent to 16.5 percent premium to Everbright’s closing price of 2.87 yuan in Shanghai trading today. The company’s shares have dropped 5.9 percent this year, compared with the 1.4 percent decline in the benchmark Shanghai Composite Index.
China Shipping (Group) Co. will buy $800 million of shares as a cornerstone investor, while billionaire Joseph Lau’s Chinese Estates Holdings Ltd. will invest $101 million. Prudential Financial Inc. and a unit of Sun Life Financial Inc. will each buy $50 million of shares in Everbright.
The Hong Kong share sale will increase Everbright’s core capital adequacy ratio by 1 percentage point and allow it to expand assets by 200 billion yuan ($33 billion), Senior Executive Vice President Lin Li told reporters in Hong Kong.
The lender won approval from its board in February 2011 to sell as many as 12 billion shares overseas. The company had planned to raise as much as $6 billion from a share sale in Hong Kong, before scaling it back to about $1.7 billion and then delaying it in August 2012, citing “sluggish” capital markets and low valuations of bank shares.
Huishang, a lender in the eastern Chinese province of Anhui, and shareholders raised about $1.4 billion through an initial offer last month, according to data compiled by Bloomberg. Bank of Chongqing, based in China’s most populous city, and existing owners raised about $559 million last month, the data show.
The 11 mainland lenders listed in Hong Kong trade near record low valuations as investors price in a surge in nonperforming loans and weaker profitability, amid a slowing economy and a government push for interest-rate deregulation.
Nonperforming loans at Chinese banks increased by 24.1 billion yuan ($4 billion) from the end of June through Sept. 30, rising for an eighth straight quarter, to 563.6 billion yuan, the banking regulator said in a statement on Nov. 13. The share of soured debt to total loans rose to 0.97 percent.
Bad loans at Everbright Bank increased 0.52 billion yuan to 9.36 billion yuan at the end of the third quarter, or 0.82 percent of total lending, according to an Oct. 29 filing to the Shanghai stock exchange.
The bank’s net income in the nine months ended Sept. 30 rose 14 percent from a year earlier to 21.7 billion yuan, according to the statement.
Everbright Bank and its fellow nationwide joint-stock commercial banks accounted for 18 percent of banking assets in China at the end of last year, compared with 45 percent held by the nation’s top five commercial banks led by Industrial & Commercial Bank of China Ltd., according to CBRC data cited in Everbright Bank’s pre-listing filing on Nov. 25.
Everbright Bank ranked fourth among joint-stock commercial banks, with 774 domestic outlets as of the end of 2012, behind China Merchants Bank Co., the leader with 961, China Citic Bank Corp. and Shanghai Pudong Development Bank Co., according to the Nov. 25 filing. ICBC had 17,125.
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