23 September 2016

Postal Savings Bank of China to go public

Postal Savings Bank of China (Postal Savings) this month filed a prospectus with the Hong Kong Stock Exchange for its planned initial public offering (IPO), which is set to close next week. As part of the deal, the company will offer shares to both international and domestic investors. Six of China’s state-owned enterprises (SOEs), including State Grid Corporation and Shanghai International Port, have agreed in advance to subscribe for almost half of the IPO shares, which in total represent a 15 per cent stake in the bank’s enlarged capital.

With a reported price of HKD 5 (USD 1) apiece, Postal Savings Bank is expected to raise a whopping HKD 57,627 million from the transaction to fund business growth. According to Zephyr, the M&A database published by Bureau van Dijk, the IPO is poised to be the world’s largest since Alibaba’s USD 21,767 million listing in 2014.

Established just nine years ago, the state-owned entity grew rapidly to become a major retail bank in China. The Banker, a financial publication, ranked the issuer as the 22nd biggest bank globally, based on its total assets, which were valued at CNY 7,708 billion (USD 1,156 billion) as of 31st March 2016. The bank has also enjoyed robust earnings growth in the past few years, having yielded net profit of CNY 34,857 million in 2015, up 17 per cent on the net profit of CNY 29,668 million recorded in 2013.

Postal Savings, which has the largest distribution network among local banks, currently operates over 40,000 outlets and serves more than one third of China’s population. It mainly caters to residents in rural parts of the country, as well as small and medium enterprises.

Despite Postal Savings’ vast customer base, the deal has so far failed to gain traction with foreign investors.  Joshua Crabb of asset manager Old Mutual Global Investors reckons the steep premium (attributable to Chinese SOEs’ tendency to price their IPOs above book value) is not justifiable even with Postal Savings’ healthier balance sheet compared to other Chinese banks, as reported by the Wall Street Journal. In addition, investors are uncomfortable with Postal Savings’ USD 37,200 million loan to China Railway – an overexposure to a single entity - in times of slowing economic growth, according to the newspaper.

Similarly, Li Bin, an analyst at Capital Securities, thinks the increasing competition from online banking is undermining Postal Savings’ advantage in its vast network, Bloomberg reported.

Commenting on the bank’s future, Postal Savings’ chairman Li Guohua, said earlier that he will pay out 10 per cent of the net profit as dividends, according to the South China Morning Post. He added: “Our bank’s growth potential is high. We are confident in our future developments.”

Postal Savings has appointed several big names, including JP Morgan, Morgan Stanley and Goldman Sachs, as joint managers and bookrunners to the IPO, while UBS is acting as the sole financial advisor to the issuer.

© Zephyr