|A China Everbright Bank branch in Jinjiang, Fujian province. The bank will offer 5.08 billion new shares to raise up to $2.8 billion in an initial public offering this week in Hong Kong. [Photo / Provided to China Daily]|
China Everbright Bank Co, the lending arm of the State-controlled China Everbright Group, hopes to raise as much as $2.8 billion through an initial public offering in Hong Kong to build a bigger coffer as the lender's bad loans continue to rise and regulators are set to lift capital requirements for banks.
Everbright is offering 5.08 billion new shares at HK$3.83 to HK$4.27 apiece to raise up to HK$21.7 billion ($2.8 billion) in the IPO this week, the bank announced in Hong Kong on Monday.
The new IPO is likely to eclipse that of China Cinda Asset Management Co, which raised $2.5 billion on the Hong Kong exchange last week, which was the Hong Kong's biggest IPO in 2013.
"As the Chinese economy changes to a model driven by consumption, we are also, correspondingly, shifting our focus to retail businesses, small and medium-sized enterprises and micro-customers, all capital-efficient businesses," said Guo You, executive director and the president of Everbright Bank.
Loans to individuals and SMEs have accounted for 54 percent of Everbright's total loans. SMEs and micro-enterprise business have continued to show great momentum, Guo told reporters in Hong Kong on Monday.
The bank is dedicated to investing in new technology-related services such as e-banking, Guo said. Everbright's mobile banking, in particular, has become a market leader on the mainland.
Although Everbright is expected to have the largest IPO in Hong Kong this year, the market is nevertheless concerned about its lagging capital adequacy, as well as its increasing number of bad loans in recent months.
In late 2012, the China Banking Regulatory Commission lifted capital requirements to control banking risks and set specific requirements for capital adequacy ratios and Tier 1 capital adequacy ratios for mainland lenders by the end of 2013, because liquidity remains a big concern in the sector.
Bank of Chongqing Co and Huishang Bank Corp, two smaller institutions on the mainland, both completed IPOs in Hong Kong in November, luring $546 million and $1.2 billion, respectively, ahead of the higher liquidity requirements.
Data from the banking regulator showed that the average CAR and TCAR among mainland banks were 12.18 percent and 9.87 percent by the end of September in 2013, while Everbright's CAR and TCAR were registered at 9.65 percent and 7.89 percent, respectively, second-lowest among the 16 listed banks.
"If the fundraising target is met this time, both our capital adequacy ratio and Tier 1 capital adequacy ratio will rise by about 1 percentage point," said Lin Li, senior executive vice-president of the bank.
"The capital will be used to expand our capital base and carry the further restructuring of the business in the long run. We are confident we will meet the regulation in the coming two years," he said.
The CBRC's rules require banks such as Everbright to have a minimum capital buffer of 10.5 percent by the end of 2018.
Chen Xingyu, an analyst with Phillip Securities (Hong Kong) Ltd, said that regulators are taking a prudent approach on banks as bad loans are increasing among most lenders on the mainland.
The banks' total bad loans increased by 24.1 billion yuan in the third quarter, rising for an eighth straight quarter, to 563.6 billion yuan, the CBRC said last month.
The nonperforming loan balance at Everbright Bank totaled 9.36 billion yuan at the end of September, with an nonperforming loan ratio of 0.82 percent of total lending, 23 percent higher than at the end of 2012, the bank said in a filing to the Shanghai stock exchange on Oct 28.
"In addition, it is Everbright's third attempt to list in the city," Chen added. "All the twists and turns will inevitably affect investors' confidence."
Beijing-based Everbright planned to raise $6 billion by kicking off an IPO in Hong Kong in 2011 but abandoned the plan the same year, citing the "sluggish economy".
In May 2012, it filed another IPO plan in Hong Kong but ended up postponing it again for the same reason.
This time, however, Everbright managers have lowered their expectations and set a practical target.
The fundraising goal should not be a problem given its national scale and sizable interest income, Chen said.