Shares of the Bank of China rose more than 14% by midday on Thursday during their debut on Hong Kong’s stock market, with indications of strong demand from investors around the globe eager to tap into the country’s galloping economy.
The bank raised $9,7-billion in an initial public offering — the world’s biggest in six years — that valued the shares at HK$2,95 each (38 US cents).
During midday trading, the stock had climbed to HK$3.38 (43 US cents), 14,4% higher than its IPO price.
Demand for the stock has been strong among institutional investors, who haven’t been scared away by the bank’s history of corruption and bad debt.
The lender is urging people to focus on its future — the booming business it plans to do with China’s increasingly affluent consumers, who are hungry for credit cards, mortgages and auto loans.
”Personal banking will be one of our chief growth drivers in the year ahead,” said the bank’s president, Li Lihui, at a recent news conference.
Goldman Sachs Group and UBS AG are underwriters of the deal.
Those taking hefty stakes in the bank include Singapore’s Temasek Holdings, UBS AG, Royal Bank of Scotland Group PLC, Japan’s Bank of Tokyo-Mitsubishi UFJ and Saudi Prince Alwaleed’s company Al Azizia Commercial Investment.
The Bank of China has assets of 4,7-trillion yuan ($586-billion), making it the country’s second-biggest lender. The bank, founded in 1912, is the nation’s most
international lender, with 560 offices in 25 countries.
But the bank has had serious problems with bad lending. It’s ratio of non-performing loans to total lending was reported at a whopping 33% in 2003. After a government bailout, the bank said the number fell to 4,4%.
However, much of its lending has been to companies, and an economic slowdown could cause the bad loans to balloon again.
Corruption has been another big worry. One of the bank’s former chairpersons, Wang Xuebing, is serving a 12-year prison term for taking bribes. A former president of the bank’s Hong Kong branch, Liu Jinbao, was given a suspended death sentence last August for embezzlement. Such sentences are usually commuted to life in prison.
Two former branch managers and their family members are facing trial in Las Vegas, Nevada, for alleged embezzlement and money laundering.
Steven Cheung, a professor of finance at City University of Hong Kong, said the past problems aren’t spooking investors because they think the stock gives them a chance to buy into China’s hot economic growth.
Cheung added that investors think that since the bank is among the first to list overseas, it must have sorted out its accounting books and is ”brave enough to face the international investment community”.
The bank also has the crucial support of China’s central government, which has launched a campaign to clean up the financial system, he said.
”Bank of China is too big to fail,” the professor said.
The total amount to be raised in the IPO could reach $11,4-billion if demand remains high and the underwriters sell an additional 15% of shares. That would make the listing the world’s largest since a $10,6-billion IPO by AT&T Wireless Services on April 26, 2000.
Another factor inspiring investors is the success other Chinese banks have had with IPOs in the past year in Hong Kong.
The share price for China Construction Bank, the nation’s number four lender, has shot up 50% since its IPO in late October. Bank of Communications, the fifth-largest, has nearly doubled since it hit the market in June.
The parade of big Chinese bank IPO is expected to continue when the Industrial and Commercial Bank of China, the country’s number one lender, hits Hong Kong’s market later this year. – Sapa-AP