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BoCom sends investors into frenzy
By Vincent Lam (China Daily)
Updated: 2005-06-17 06:07

Shares in the Bank of Communications, the nation's fifth-largest lender, were over-subscribed by a factor of 200 at IPO a positive indicator for other mainland banks waiting nervously in the wings ahead of listing on the Hong Kong market.

The Shanghai-based bank offered a total of 5.856 billion H-shares, including 292.782 million for the retail tranche. The offer range was set at HK$1.95-HK$2.55.

An over-subscription of 200 times means the freezing of HK$150 billion, the sixth-largest amount of funds frozen during IPO for an H-shares company.

The larger previously suspended funds are HK$240 billion of Denway Motor in 1993, HK$210 billion of Beijing holdings in 1997, HK$200 billion of China Life in 1993, HK$138 billion of CITIC Pacific and HK$118 billion of WeiChai Power.

The international tranche has also been over-subscribed by a factor of 20.

Due to the satisfactory subscription response, the bank may set the price at the upper end of the offer range - at HK$2.55 per share - representing a price/book ratio of more than 1.6.

The huge amount of margin financing for BoCom's IPO rocketed the overnight Hong Kong interbank offer rate to close to 5 per cent from the usual 3 per cent level, forcing some banks to borrow from the Hong Kong Monetary Authority through a discount window for HK$1.78 billion.

According to the IPO prospectus of BoCom, the over-allotment option will be exercised and the proportion of retail tranche lifted from 5 per cent to 20 per cent, as the rate of over-subscription exceeded 100 times.

BoCom's success brightened the gloomy first trading day of fellow H-share Company Shenhua, which made its debut yesterday with a drop of 2.67 per cent to HK$7.30 from its offer price of HK$7.50.

Louis Wong, director at Phillip Securities, said: "This amount of over-subscription is expected because of the growth prospects for the Chinese banking industry and the strong interest of international institutional investors providing a boost for the stock."

The bank is 19.99 per cent owned by global financial giant HSBC, giving investors confidence in its determination to attain profitability on a par with other international players in a few years, by focusing on a more lucrative retail business instead of corporate lending.

Co-underwritten by Goldman Sachs and HSBC, the price range represents 1.3 to 1.6 times the estimated 2005 book value of the bank, and 11.1 to 14.5 times its 2005 profit forecast, which is cheaper than Hong Kong-traded banks including HSBC Holdings Plc and Standard Chartered Plc.

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