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Bank of Nanjing and Bank of Ningbo soared 72 per cent and 141 per cent, respectively, on their trading debuts on the Shanghai and Shenzhen stock exchanges on Thursday, as investors grabbed their first opportunity to buy into China’s smaller regional banks.
The first-day premiums were in line with other recent Chinese initial public offerings and are almost a tradition in the country’s highly speculative and opaque capital markets.
“This is a very typical A-share phenomenon,” said Jerry Lou, equity strategist at Morgan Stanley in Hong Kong, referring to renminbi-denominated, domestically traded shares. “Chinese investors like smaller stocks because they have more potential to go up quickly – which shows you just how speculative the market is.”
So far this year, 47 companies have raised a combined Rmb141bn ($18.6bn) by means of IPOs with their shares increasing by an average of 137 per cent on their first day of trading.
The two banks are the first city commercial banks to go public in China, following the path blazed by the country’s largest lenders, including Industrial and Commercial Bank of China, Bank of China and China Construction Bank.
They are expected to be followed to the stock markets by at least 20 more city commercial banks in the next two years and, given that every important Chinese city has its own local bank, there could be more to come after that.
“I won’t be surprised to see lots of city commercial banks coming to market as they can get a good price and many of them are looking to recapitalise,” Mr Lou said.
Both of the newly listed banks have introduced strategic foreign investors to help them reform their risk management and restructure to meet intensifying competition from foreign banks.
France’s BNP Paribas owns about 13 per cent of Bank of Nanjing and Singapore’s Oversea-Chinese Banking Corp has a share in Bank of Ningbo.
By Thursday’s close, Nanjing Bank’s shares were trading at a price-to-earnings ratio of 47 times estimated 2007 earnings while Ningbo Bank’s p/e ratio was 65 times forecast earnings.
IPOs in China are always priced cheaply in order to guarantee a successful debut and profits for early-stage institutional investors, many of which are state-owned enterprises.
In the history of the Chinese stock markets, there have been only five IPOs that fell on their first day of trading.
In August, 2004, three IPOs fell on debut, forcing their already struggling underwriters to pick up the slack and to buy their shares.
The government promptly suspended new share listings for nearly seven months because of concerns about the potential for widespread failures in the already bankrupt securities industry.
So far this year, the Shanghai Composite index has increased 46 per cent, in spite of undergoing sharp falls at the end of May.