China’s Postal Savings Bank isn’t too big for an IPO

People walk past a sign outside a branch of Postal Savings Bank of China (PSBC) in downtown Beijing, China, November 12, 2015. REUTERS/Kim Kyung-Hoon/File Photo

Even China’s most quintessentially official financial institution needs capital, and it’s turning to investors, not the government.

Postal Savings Bank planned IPO $8 billion

Postal Savings Bank of China, the nation’s biggest by branches, filed for an $8 billion IPO, people familiar with the matter told Bloomberg News. That was about a week after the lender got approval from the China Banking Regulatory Commission to sell 13.96 billion shares in Hong Kong, to replenish capital. The bank certainly needs it.

According to the deal prospectus filed in September 2015, Postal Savings Bank’s capital-adequacy ratio was at 9.6 percent at the end of 2014, the last time it was reported. Nonperforming loans eat into a bank’s capital as they increase impairments and provisions, both of which can reduce equity. The soured-debt ratio of Postal Savings is one of the lowest in the system, at 0.64 percent by the end of 2014. Still, the lender is unlikely to have escaped the broader upward trend of the past two years.

Regulators require China’s biggest banks to have a capital-adequacy ratio of 8 percent, plus a conservation buffer of up to 2.5 percent; an extra percentage point is applied to systemically important financial institutions. The total 11.5 percent is at least two percentage points higher than where Postal Savings Bank was 18 months ago.

Investors will see more up-to-date numbers as the deal progresses. But it’s clear the bank needs capital, and with the 6.3 trillion yuan ($947 billion) in assets it held at the end of 2014, $8 billion may not be enough.

That may, however, get the bank above the waterline when added to the capital boost Postal Savings received in December, when it raised $7 billion by selling a 17 percent stake to investors including UBS and JPMorgan in a transaction that valued China’s sixth-biggest bank by assets at about $41.5 billion.

That deal was done at a price-to-book ratio slightly above 1. Now the challenge will be to persuade other investors that they should pay at least book value in the IPO, while Postal Savings Bank’s peers all trade at a discount.

Investors should demand a similar discount of Postal Savings. While it’s hard to imagine the bank being allowed to run into trouble, it’s easy to see this call on markets being the first of several.

Also read:

China’s Postal Savings Bank invites banks to be sponsors for $15b HK IPO

China’s Postal Savings Bank files for HK IPO, world’s biggest since Alibaba

Bloomberg

Singapore Reporter/s

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.