Shares of the Bank of Communications (BoCom), China's first mainland bank to list overseas, made strong gains on its trading debut in Hong Kong yesterday.
BoCom's shares opened at HK$2.80 (36 US cents), 30 HK cents higher than the IPO price of HK$2.50 (32 US cents), and then fluctuated between HK$2.80 to HK$2.90. They closed at HK$2.825, up 13 per cent with a turnover of HK$5.158 billion (US$661 million).
"We are very satisfied with the performance," said a top-ranking BoCom official in Shanghai, where the bank's headquarters are located.
The good performance even exceeded market expectations, said Ronald Wan, executive director of SBI E2-Capital, a Hong Kong-based investment bank.
Before the trading debut, market observers predicted room for a 10 per cent value increase.
BoCom's performance will pave the way and offer experience to other mainland banks waiting to sell shares overseas, he said.
BoCom is China's fifth mainland lender. HSBC - Europe's biggest bank by market value - is the second-largest shareholder of BoCom owning 19.9 per cent of its shares, only after the Chinese Finance Ministry, with 25.53 per cent.
HSBC and US-based international investment bank Goldman Sachs arranged BoCom's sale. HSBC also bought 20 per cent of BoCom's H shares to keep its position in the directorate.
As an international financial heavyweight, HSBC's involvement in BoCom offered confidence to investors. The brand effect is a main reason for its strong debut, Wan said.
BoCom sold 5.856 billion shares at HK$2.50 a piece, collecting HK$14.65 billion (US$1.88 billion) after over-subscription from international and public tranches last week.
This is the second-largest initial public offering in the world so far this year, only after Shenhua Energy, which raised HK$28.34 (US$3.63) early this month.
On the other hand, BoCom's shares were offered at a lower valuation than Hong Kong-traded banks including HSBC Holding Plc and Standard Chartered Plc, which attracted Hong Kong public investors.
Meanwhile experts said the comparatively low offering also exerted some pressure on the Minsheng Banking Corp, a mainland private bank also to be listed in Hong Kong. Minsheng set its H share price at HK$5.28 (68 US cents), higher than the valuation of BoCom.
Minsheng had postponed its Hong Kong IPO this Monday, waiting to see market moves and searching for the right time.
Market observers said if BoCom can maintain its increasing momentum, Minsheng is more likely to launch its IPO with a high price.
BoCom attracted HK$153 billion (US$19.6 billion) in orders from Hong Kong public investors, 205 times more than the shares originally offered to them. This encouraged the bank to reset the sale proportion to the retail tranche to 20 per cent from the original 5 per cent.
BoCom sold 60 per cent of its shares to international investors including overseas institutions, corporations and high net worth investors.
In the international tranche, the bank also got a high subscription by 20 times in the international sector.
The over-subscription froze about HK$150 billion and pushed the interest rate in the inter-bank market to 5 per cent from the normal 3 per cent due to available capital shortage.
People's purchasing eagerness and the strong debut are indicators of positive anticipation about China's banking sector from international investors, said He Xin, head of China Capital Markets of Calyon Corporate and Investment Bank.
BoCom is the first mainland bank to list overseas and it is a representative of China's banks. This makes the investors confident about its developing potential, he said.
BoCom's share price is 14.8 times the 2005 profit the bank forecast and 1.6 times the book value.
