Shanghai-listed China Merchants Bank (CMB), the nation's No 6 lender, has applied to the Hong Kong bourse to float H shares worth at least US$2.2 billion.

 

Li Yinquan, vice-president of China Merchants Group, a major shareholder with a 25.5 percent stake in the bank, yesterday told China Daily that the bank filed with the Hong Kong stock exchange to issue H shares on Tuesday.

 

"The bank will issue at least 15 percent of its total equity, but we have not decided the exact amount." Li said.

 

The Shenzhen-based bank said in a statement in March that it planned to offer US$2.2 billion new shares in Hong Kong.

 

China International Capital Corp, UBS and JP Morgan will be the bank's joint underwriters, according to Li.

 

Li said it would take six to eight weeks for the Hong Kong exchange to make a decision. Sources close to the bank said that if approved, the deal would go to market in late August or early September.

 

Domestic shares, or A shares, accounted for about 38 percent of the bank's total equity before the proposed Hong Kong listing.

 

The CMB now trades at 2.73 times its net asset value (NAV) of 2.64 yuan (32 US cents) per share as of the end of March. Assuming the lender raises US$2 billion in the Hong Kong offering, its NAV will increase to 3.34 yuan (41 US cents) per share.

 

By comparison, Bank of Communications and China Construction Bank are trading at 2.55 and 2.52 times their forecast 2006 NAV, respectively.

 

The CMB posted a net profit of 1.313 billion yuan (US$160 million) in the first quarter, up 24 percent year on year.

 

It was rated one of the best performers in 2005 by domestic magazine the Banker, which is affiliated to the Chinese Academy of Social Sciences.

 

Its non-performing loan ratio stood at 2.37 percent at the end of March.

 

The CMB's proposed H-share issue comes at a time when many investors are in favor of Chinese financial stocks, with Bank of China rising 34 percent after raising US$9.8 billion in the world's largest initial public offering (IPO) in six years last month.

 

Bank of China yesterday announced it would add HK$11 billion (US$1.4 billion) worth of new H shares as part of an over-allotment option, as expected, making it the world's fourth-largest IPO.

 

It said in a statement it would issue an additional 3.84 billion new H shares at HK$2.95 each to cover over-allocations of shares to institutional investors in its Hong Kong IPO.

 

The bank raised US$9.7 billion in the world's sixth-largest initial public offering prior to issuing additional shares.

 

Shares in the Chinese lender have soared about 21 percent since its Hong Kong debut last week to end at HK$3.525 (45 US cents) yesterday.

 

The share sale was the largest from China and marked another milestone in the government's efforts to clean up a banking sector that has long been a weak link in the country's booming economy as a result of decades of State-directed lending.

 

(China Daily June 8, 2006)