Photographer: Qilai Shen/Bloomberg

Bank Jumps 44% in Shanghai Debut Even After China Debt Warnings

  • Shares rise by daily maximum after $633 million share sale
  • Bank of Guiyang reported 32% profit increase in 2015

The shares of a Chinese bank surged by 44 percent in their Shanghai debut on Tuesday even after a spate of warnings that the nation’s bad loans are understated and lenders may need bailouts in coming years.

Bank of Guiyang Co. rose by the daily limit after the firm, based in the capital of Guizhou province, raised about 4.2 billion yuan ($633 million) in an initial public offering.

Dramatic gains for newly-listed shares have become commonplace as China’s regulators limit the supply of new stock. Bank of Jiangsu Co. rose 44 percent on Aug. 2.

“Investors are keeping a close eye on new stocks as there’s abundant liquidity in the market,” said Liao Chenkai, a Shanghai-based analyst at Capital Securities Corp. While banks are making progress in tackling bad loans, “the industry’s problems are still there,” Liao said.

The International Monetary Fund last week highlighted risks to the financial system from so-called shadow credit and UBS Group AG analyst Jason Bedford argued that bailouts of smaller banks are already quietly taking place.

Boosting Valuations

Chinese banks could boost their valuations by setting medium-term bad-loan targets that would help to reassure investors about their asset quality, China Merchants Securities Co.  analysts led by Ma Kunpeng said in a note.

Bank of Guiyang is one of more than 130 city commercial banks with operations and performances largely tied to their local economies. The lender reported a 32 percent increase in profit in 2015 as Guiyang’s economic growth outpaced China’s.

China’s market for initial public offerings is the hottest on record, with an average return of 420 percent in a month for 62 stocks that listed this year.