Postal Savings Bank of China has thrown its doors open to global investors with a jumbo Hong Kong IPO. While the share price has not moved much since the deal closed, the Hong Kong listing offers long-term benefits to the lender, which is eyeing potential business overseas. Stefania Palma reports.

Lu Jiajin embedded

Postal Savings Bank of China (PSBC) stands out for having a ubiquitous presence in the most populous country in the world. It has an outlet in every Chinese city and a clientele of 500 million people, almost one-third of China’s 1.37 billion population. But in September, PSBC grabbed even more attention through its $7.4bn listing on the Hong Kong Stock Exchange – the largest initial public offering (IPO) in the world in the past two years since Chinese internet giant Alibaba raised $25bn in 2014.

The IPO is partly a product of China’s central bank and financial supervisory board pushing PSBC to diversify its investor base as the lender’s growth has accelerated. 

From one to many

PSBC had only one shareholder, China Post Group, until 2015, when it introduced 10 strategic investors including international banks and fund managers as well as local tech players. Now its IPO has opened the door towards more global investors. “The IPO will help PSBC diversify ownership, improve corporate governance and refine the management of the bank,” says PSBC's president, Lyu Jiajin.

PSBC’s listing will also bulk up the bank’s capital, which met regulatory requirements, at 10.47%, before the IPO. “After the IPO, we expect the ratio to be further improved to about 12%,” says Mr Lyu.

While non-financial institutions raise capital to make fixed-asset investments for technical development or to explore new markets, PSBC will mostly use the money to dilute risks and hedge asset losses. “The proportion of the money used to build fixed assets or develop IT construction will be low,” adds Mr Lyu. 

Hong Kong allure

When asked about the choice of stock exchange for the IPO, Mr Lyu says Hong Kong offered better access to international investors compared with exchanges in mainland China. “Hong Kong is a very important global financial centre. The market is international and investors are more professional and rational,” he says.

Listing in Hong Kong could also help PSBC set itself up for new business outside the mainland. “China is promoting [the] 'Going Overseas' strategy and the 'One Belt One Road' strategy. PSBC does not have overseas branches at present, but our international business is developing very quickly. By doing the IPO in Hong Kong, we can choose it as a platform to coordinate overseas and domestic markets to better serve China and world economic growth,” says Mr Lyu.

Although nothing has been decided yet, the bank is considering raising funds overseas. “When we raise money in international markets, we face different accounting principles and regulation,” says Mr Lyu.

Listing in Hong Kong also meant PSBC avoided what analysts estimate to be a five-year queue to list in the mainland. But Mr Lyu says the long wait did not determine PSBC's choice to list in Hong Kong. 

Pricing debate

PSBC’s IPO priced at the lower end of the HK$4.68 to HK$5.18 ($0.60 to 0.66) marketing range, at HK$4.76. But some analysts were underwhelmed with the performance of the stock after the deal closed. Shares closed only HK$0.01 over the IPO price in the first day of trading and were back at HK$4.76 at the time of publication.

Having six cornerstone investors snapping up 77% of the shares may have limited secondary market liquidity, but Mr Lyu is not worried. “As we have a large-scale issuance overall, the absolute volume of [the deal] in addition to cornerstone investors' [proportion] is big. So there will be no problem in [secondary market] liquidity,” he says. Other analysts point to international investors’ worries over Chinese banks’ exposure to highly leveraged local corporates.

But Mr Lyu is optimistic. “We are not worried about secondary market liquidity for our shares. At present the trading of our shares is active. Liquidity is rich and there is not much impact on the share price. I [also] expect some upward adjustment to Chinese banks’ share prices as the economy improves. We expect that PSBC's share price will have better performance in the future.”

Mr Lyu adds that critics should also consider stock markets’ vulnerability to external events. “The share price is not just a reflection of operational results, but it is also connected to the general environment, such as global economic growth, political elements and economic sluggishness. Today we have Brexit, US [presidential] elections, etc... and these all have some influence on stock performance,” he says.

PSBC is also satisfied with the IPO pricing compared with that of other Chinese banks. “Our IPO was successful since our price-to-book ratio is above 1 and we realised a premium over it. We have outperformed other commercial banks,” says Mr Lyu.

When it comes to future funding, PSBC is not aiming to raise further capital. However, it is looking to print subordinated bonds in China’s interbank market to increase its capital adequacy ratio and to take advantage of low interest rates.

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