HONG KONG China Everbright Bank Co Ltd (601818.SS) fell in its Hong Kong debut on Friday, as renewed cash crunch fears about China's banking system exacerbated weak sentiment towards a mid-sized lender that has taken three attempts to come to market.
Everbright (6818.HK), which raised $3 billion in its IPO, is the latest in a raft of banks rushing to tap investors to meet more stringent capital rules, and which have seen profits shrink and unpaid debts climb amid slower economic growth.
While other China bank IPOs have also been lackluster, Everbright's listing has been particularly unsung, with cornerstone investors accounting for about 60 percent of the offer - more than double the normal level - as underwriters sought to lock in as much institutional demand as possible.
Everbright, which is also listed in Shanghai, also had the misfortune to debut amid a spike in interbank rates. China's benchmark money market rate climbed to a six-month high on Friday despite attempts by the central bank to calm sentiment, with signs of a scramble for cash reminiscent of a massive crunch that occurred in June.
Although China stock markets have shown a more measured response than in June, some anxiety has set in and shares in Everbright dropped to HK$3.87, or 3 percent below its IPO price, which was near the bottom of its indicated range.
"It's not particularly cheap," said Cong Li, managing partner at Hong Kong-based hedge fund Zenas Capital Management.
"Financial names are under pressure because the inter-bank rates went up quite a lot recently in China" he said. Li invests in Chinese stocks but is not an Everbright Bank shareholder.
Other recent listings such as Huishang Bank Corp Ltd (3698.HK) and Bank of Chongqing (1963.HK) trade near or below their listing price.
After an initial surge of as much as 40 percent, China Cinda Asset Management Co Ltd (1359.HK), a bad loan management firm, has also given up some of its gains. The Hang Seng H Financial Index .HSHFI is down about 1 percent this year.
Everbright is among the mid-sized banks in China that have a relatively low amount of reserve cash on hand, as the lenders are dwarfed by the country's Big Four banks and, as a result, are more aggressive in the loans they extend.
Its Tier 1 risk-adjusted capital ratio - a measure of the strength of bank balance sheets - was 7.89 percent as of September 2013, significantly below the industry median of 12.03 percent, according to data compiled by Thomson Reuters.
The new rush to tap investors comes after Chinese lenders in 2010 raised $82 billion as a surging stock market helped them replenish cash after a post-financial crisis lending binge, according to data from Thomson Reuters.
Everbright received commitments worth $1.74 billion from 19 cornerstone investors including a massive $800 million from China Shipping (Group) Co CNSHI.UL, according to its prospectus released this month.
The uptake of these investors resulted in a much lower percentage of publicly floated shares - requiring special permission from Hong Kong regulators.
The Everbright Bank IPO is Hong Kong's biggest share sale since China Petroleum & Chemical Corp (Sinopec) (0386.HK) (600028.SS), Asia's largest refiner, raised $3.1 billion in February.
It failed in two previous attempts to list in Hong Kong, hit by market volatility around the time of the process. It had hoped in 2011 to raise $6 billion through a Hong Kong deal.
China Everbright Securities, China International Capital Corp, Morgan Stanley (MS.N) and UBS AG UBSN.VX were the lead coordinators of the offering.
(Additional reporting by Nishant Kumar in Hong Kong; Editing by Edwina Gibbs)