It was a far cry from the hype surrounding the Hong Kong IPO plans of China Minsheng Banking Corp. On Thursday, Minsheng gained the dubious distinction of becoming the first Chinese lender in four years to fall on its Hong Kong trading debut.
As Bloomberg reports, Minsheng had the worst Hong Kong trading debut among the seven Chinese lenders that sold shares in the city since June 2005, on concerns that China’s banks will have to raise capital to meet swelling loan demand. Of course it didn’t help that Chinese banks led the Hong Kong and Shanghai exchanges down on a fairly bleak trading day.
Yet, just a couple of weeks ago, Hopu Investment Management, the mainland Chinese private equity fund set up by former Goldman Sachs dealmakers, was all set to acquire a massive stake in Minsheng, in a huge bet on its IPO. Among several overseas investors expressing interest in a $100m stake in Minsheng was Soros Fund Management. And its Hong Kong offering was 150 times oversubscribed.
Minsheng, which has assets of about $200bn, was set up by a group of mainland investors as China’s first privately-owned bank in 1996 and listed on the Shanghai stock market four years later. Regarded as one of the best-managed banks, it had good connections and everyone seemed to want a piece of it.
How quickly things change. Minsheng had slipped 1.2 per cent by early afternoon in Hong Kong to HK$8.97 on Thursday. The company, whose Shanghai-traded stock has doubled this year, this month raised HK$30.1bn ($3.9bn) in the territory’s biggest public share sale since April 2007. It had earlier targeted nearly $1bn more than that figure.
Despite an overall surge of IPO activity in the Asian region, Hong Kong IPOs have not performed particularly well in recent months – and some quite poorly by historical standards. And for Minsheng specifically, recent statements and actions by some in mainland China’s vast and thriving financial community have hardly helped.
For one thing, there has been a slew of capital-raising plans announced by China’s banks, which are scrambling to shore up their finances following an unprecedented surge in lending over the past year.
In a particularly excruciating bit of timing, Bank of China said on Tuesday that it was studying “various options” for raising money – an announcement that immediately drove down banks on Hong Kong’s market. As the FT reported, China’s 11 largest listed banks will have to raise at least Rmb300bn ($43bn) to meet more stringent capital adequacy requirements and maintain loan growth and business expansion, according to estimates from BNP Paribas.
Already, adds Bloomberg, China’s five largest lenders have submitted preliminary plans for boosting capital to the country’s banking regulator. Among them, Industrial Bank, backed by a unit of HSBC, this week said it plans to raise Rmb18bn ($2.6bn) next year in a rights offer, while China Merchants Bank said it aims to raise as much as Rmb22bn by the end of this year.
Minsheng, however, has no intention of raising capital for the next three years, its chairman said on Thursday. But Li Qing, a Shanghai-based analyst at CSC Securities HK, told Bloomberg: “With Minsheng’s pace of expansion, it will need a second round of equity financing in two years.”
On top of this are mounting worries about a looming asset price bubble after sharp climbs in Hong Kong’s stock and real estate markets.
Then there was the blow dealt to Minsheng last week by Hopu, which abruptly withdrew its promised $1bn investment in the bank, saying its shares had been overpriced.
As the FT noted on Thursday, Minsheng’s IPO follows several disappointing listings in Hong Kong recently. Real estate companies including Mingfa Group and Yuzhou Properties, which debuted this month, are both about 10 per cent below their IPO prices. Wynn Macau has dropped about 3 per cent since it came to the market in October.
Related links:
Chinese banks – Lex
Asia’s markets are still dancing for IPOs – FT Alphaville
Maxis enjoys its maxi IPO while Hopu pulls out of Minsheng – FT Alphaville