H.K. Share Sale Drought Worsens, Everbright Pulls Deal
China Everbright Bank Co. (601818) became the latest company to scrap a first-time share sale in Hong Kong, where listings are on track for the worst year in almost a decade.
Everbright Bank will delay the offering because of “continuous sluggish capital markets and relatively low valuations of banking shares,” it said in a statement to Shanghai’s stock exchange late yesterday. The sale could have raised about $1.7 billion, based on the price of Everbright Bank shares traded in Shanghai.
Everbright Bank had already cut the proposed size of the share sale from $6 billion last year. The lender joins companies including London-based diamond retailer Graff Diamonds Corp. and Chinese machinery maker Sany Heavy Industry Co. in shelving at least $4.8 billion of offerings in Hong Kong this year, data compiled by Bloomberg show.
The Beijing-based lender will restart listing preparations when there is a “relatively good window,” according to the filing.
As Europe’s debt crisis and concerns about China’s economic slowdown roiled stock markets, companies have raised just $5.7 billion in first-time offerings in the city this year, down from $14.3 billion in the same period of 2011. Companies raised $1.9 billion going public in Hong Kong in the first nine months of 2003, data compiled by Bloomberg show.
The figures include offerings by companies already listed elsewhere.
Chinese banks trade at close to record-low valuations in Hong Kong amid expectations that borrowers will have trouble repaying debt as the nation’s economy slows. China is also loosening controls on how much banks can charge borrowers, allowing them to lower interest rates to take market share, potentially hurting profit from lending.
First-half earnings at Chinese banks will mark their “last solid results with a bumpy road ahead,” Deutsche Bank AG analysts wrote in a July research note. The analysts expect the nation’s 16 publicly traded lenders to post net income growth of 16 percent for the first six months, followed by a 1.5 percent drop in the second half of the year.
Everbright Bank last week reported a 40 percent gain in first-half profit, to 12.9 billion yuan ($2 billion). The lender’s core capital adequacy ratio, a key measure of financial strength, rose to 8.05 percent as of June 30 from 7.89 percent at the start of the year. The ratio is still lower than the 8.5 percent minimum requirement imposed under new capital rules to be phased in next year.
Sany Heavy Industry Co., China’s biggest machinery maker, scrapped a $2 billion share sale in Hong Kong last month, while Graff Diamonds Corp., based in London, canceled a $1 billion initial offering in May.
Bank of Communications Co., the nation’s fifth-largest, yesterday raised $8.9 billion by selling 6.5 billion shares in Shanghai and 5.8 billion shares in Hong Kong through a private placement. China Merchants Bank Co. (3968) last month extended by another year its plan to raise as much as 35 billion yuan through a rights offering.
China’s central bank in June began to allow banks to charge less for loans as it liberalizes rules on how they set interest rates. After widening the discount on borrowing costs to 20 percent below the benchmark rate that month, it increased the gap to 30 percent in July.
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