New | China’s Postal Savings Bank taps mainland institutional support for US$8.1b IPO amid market concerns over risks
Postal Savings Bank of China has warned investors of the risks it faces, including a high concentration of its loan portfolio with China Railway Group and uncertainty in maintaining the current scale of its outlets, as it prepares to launch what will be the world’s biggest initial public offering of the year.
Despite the warnings, some sources said 90 per cent of the offer marked for institutional investors was fully subscribed to as of 8pm Tuesday night thanks mainly to mainland Chinese institutional investors stepping up to the plate even as international investors remained cautious.
In disclosure documents provided to investors, the bank said China Railway was its largest single borrower, with its credit exposure to the railway firm standing at 248.2 billion yuan, representing as much as 74.32 per cent of its regulatory capital as of March 31.
While the bank runs a lower loan balance than the big four state-owned banks – only 40 per cent of its deposits are loaned out compared to the industry’s average 70 per cent – banking analyst Wei Hou at Sanford Bernstein estimates Postal Savings’ exposure to China Railway represents as much as 20 per cent of the lenders corporate loan business.
At a press briefing on Wednesday Lyu Jiajin, Postal Savings president, admitted the figure was high but said it was due to historical reasons. “When Postal first started, it was built as a railway deposit institution,” he said. “Rail in China was a high growth, low risk sector. The loans were made under regulatory support and approval. China Railway represents a good quality asset.”
Rail in China was a high growth, low risk sector. The loans were made under regulatory support and approval
The bank, which has 40,057 domestic outlets, almost double that of the next largest player Agricultural Bank of China, also warned of uncertainly in maintaining such scale, even though its wide national coverage amid China’s rapid urbanisation was one of the major selling points pitched by underwriters to investors. Wei Sun Christianson, Asia Pacific co-chief and China chief of Morgan Stanley, said the bank could provide financial services to meet the demands of up to a third of China’s population.
