Debt fears weigh on HK debuts of mid-sized China banks

Debt fears weigh on HK debuts of mid-sized China banks

HONG KONG, March 30 (Reuters) - Shares of two mid-sized Chinese lenders traded lower on their Hong Kong debuts on Wednesday in the face of tepid investor demand after they raised a combined $2.6 billion last week in the world's two largest IPOs so far in 2016.

The cold reception underscores rising concerns about earnings growth at financial firms in China as non-performing loans soar to the highest in a decade.

China Zheshang Bank Co Ltd traded at HK$3.94 compared with the HK$3.96 IPO price, while Bank of Tianjin Co Ltd fell to HK$7.36 versus its offer price of HK$7.39. The benchmark Hang Seng index was up 1.6 percent in late-morning trade.

Zheshang Bank's initial public offering raised about $1.7 billion and Bank of Tianjin's deal another $950 million, with both offerings pricing near the bottom of expectations.

Demand from retail investors - key to the success of IPOs in the island city - accounted for just 2.8 percent of the shares on offer, Zheshang Bank said in a filing on Tuesday. Bank of Tianjin said mom and pop investors subscribed for 0.6 percent of the retail portion, underscoring weak appetite for the deals.

The institutional tranche for both IPOs was slightly over-subscribed, the banks said.


Underscoring investors' worries, China's fifth-largest lender said late on Tuesday maintaining even a timid 1 percent profit growth in 2016 would be a stretch because of a slump in corporate banking as bad debts mount.

The Zheshang Bank and Bank of Tianjin deals come after three other medium-sized lenders raised a combined $2.3 billion late last year. Though all three deals priced near or at the bottom of expectations, Bank of Jinzhou Co Ltd's shares are up 30 percent, while Bank of Qingdao Co Ltd has climbed 3.8 percent and Bank of Zhengzhou Co Ltd is up 18 percent since their debuts in December.

China's non-performing loans (NPLs) reached a 10-year high of 1.27 trillion yuan at the end of 2015, while special mention loans, or debts that could potentially turn sour, rose to 2.89 trillion yuan.

Zheshang Bank is among the 12 so-called nationwide joint stock commercial banks, whose assets accounted for 18 percent of China's banking industry. China has 133 so-called city commercial banks similar to Bank of Tianjin, which are growing faster than their larger peers but have assets worth only 10.5 percent of the industry.

By contrast, the country's top five banks, including Industrial and Commercial Bank of China (ICBC) and Bank of Communications Co Ltd , made up about 41 percent of total industry assets, according to China's banking regulator. (Reporting by Elzio Barreto; Editing by Stephen Coates)

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