Small Chinese Lenders Resort to IPOs to Support Tiny Businesses
Xu Wei
DATE:  Jun 24 2020
/ SOURCE:  Yicai
Small Chinese Lenders Resort to IPOs to Support Tiny Businesses Small Chinese Lenders Resort to IPOs to Support Tiny Businesses

(Yicai Global) June 24 -- Small and medium-sized Chinese banks, which usually lend money to smaller firms, are rushing to go public to raise funds amid tightening liquidity despite their peers' low market caps.

Some 19 lenders have announced their initial public offering plans in Shanghai and Shenzhen while most of them are not large banks, the Chinese Economic Net reported today. However, none have yet gone public on the mainland or in Hong Kong this year.

Small and medium-sized banks are the main drivers of credit for privately owned, as well as small and micro enterprises so they are facing long-term financing pressures, a banking industry insider told the same news source. Going public would fulfill their demand as they don't have many funding channels and their borrowing costs are high, the person added.

However, bourses prefer IPO applicants that are science and technology companies and manufacturing firms amid the Covid-19 pandemic that is putting some pressure on the real economy, analysts suggested.

But that doesn't speak for who needs the money the most. Smaller Chinese lenders, which are usually commercial urban or rural banks, tend to have lower capital adequacy ratios than large banks and joint-stock ones. In the first quarter, city commercial banks had a 12.65 percent ratio while that of rural commercial banks was 12.81 percent, according to data from the China Banking and Insurance Regulatory Commission. Meanwhile, large banks had 16.14 percent and foreign ones as much as 18.43 percent.

The banking sector has been volatile amid the pandemic. Some 32 among the mainland's 36 listed banks had their market caps fall below their net assets as of yesterday's market close, according to public data. Only Bank of Ningbo [SHE: 002142], China Merchants Bank [SHA: 600036], Changshu Rural Commercial Bank [SHA: 601128], and Zijin Rural Commercial Bank [SHA: 601860] bucked the downturn.

In the absence of IPOs, lenders have resorted to perpetual bonds to replenish their capital. Ten out of the 15 applicants have already issued such debt instruments, raising CNY254.9 billion (USD36.1 billion), according to ChinaMoney. The four national lenders of Ping An Bank, Postal Savings Bank, Agricultural Bank of China, and Bank of China, made up 92 percent of the total.

Small and medium-sized banks offer their perpetual bonds with rates usually above 4.5 percent, whereas large and joint-stock banks can go lower than 4 percent.

Editor: Emmi Laine
 

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Keywords:   IPO,Bank