Everbright Bank Falls After $3 Billion Hong Kong Share Sale

Dec 19, 2013 9:19 pm ET

(Updates with broker comment in fourth paragraph.)

Dec. 20 (Bloomberg) -- China Everbright Bank Co. shares declined in their Hong Kong trading debut after the lender raised $3 billion in the city’s biggest first-time share sale this year to strengthen capital buffers as bad loans increase.

Shares of the Beijing-based lender dropped 3.8 percent to HK$3.83 at 9:54 a.m. local time, while the benchmark Hang Seng Index slipped 0.1 percent. The bank’s shares in Shanghai lost 0.4 percent to 2.77 yuan. Everbright Bank had sold 5.84 billion shares in Hong Kong at HK$3.98 apiece.

China’s 11th-biggest lender by market value joins other banks bolstering capital through Hong Kong listings amid requirements to hold more reserves. Chinese regulators are pushing banks to strengthen their balance sheets as concern mounts that slowing economic growth may lead to an increase in soured debt.

“Nonperforming loans are eating into the capital of mainland banks,” Francis Lun, chief executive officer of GEO Securities Ltd., said in an interview today. “It’s a problem permeating through the entire banking system. Everbright Bank is just a second- or third-tier player. It won’t be able to escape from this.”

The share sale will boost Everbright Bank’s core capital ratio by 1 percentage point, Senior Executive Vice President Lin Li said at a Dec. 9 briefing in Hong Kong. Last month, Huishang Bank Corp. and shareholders raised $1.4 billion in an IPO, and Bank of Chongqing Co. completed a $559 million offering.

Huishang Bank has gained 0.6 percent from its offer price, while Bank of Chongqing has lost 6.7 percent. Everbright’s sale surpassed China Cinda Asset Management Co.’s $2.5 billion IPO as Hong Kong’s biggest first-time offering in 2013.

Lowest Valuation

Mainland banks are trading at an average 5.2 times their 2013 forecast earnings in Hong Kong, compared with 5 times in Shanghai and Shenzhen trading, according to data compiled by Bloomberg. Everbright Bank shares traded at 4.3 times in Shanghai, the lowest of any lender.

Everbright Bank’s capital adequacy ratio stood at 9.65 percent as of Sept. 30, according to company filings. The China Banking Regulatory Commission’s rules require banks such as Everbright, which the regulator doesn’t classify as systemically important, to have minimum capital buffers of 10.5 percent before the end of 2018.

The lender had planned to raise as much as $6 billion from a share sale in Hong Kong, before scaling it back to about $1.7 billion and then delaying it in August 2012, citing “sluggish” capital markets and low valuations of bank shares.

Mid-Sized Bank

Everbright Bank is classified as a nationwide joint-stock commercial bank, a group of mid-sized lenders that accounted for 18 percent of banking assets in China at the end of last year. That compares with 45 percent held by the nation’s top five commercial banks, led by Industrial & Commercial Bank of China Ltd., according to CBRC data cited in Everbright Bank’s listing prospectus.

Everbright Bank ranked fourth among joint-stock commercial banks, with 774 domestic outlets as of the end of 2012, according to the prospectus. China Merchants Bank Co. was in the lead with 961, followed by China Citic Bank Corp. and Shanghai Pudong Development Bank Co. ICBC had 17,125.

--Jun Luo, Stephanie Tong and Fox Hu. Editors: Nathaniel Espino, Darren Boey