Bank Of China Hong Kong Listing Set For July

by Mary Swire, Tax-News.com, Hong Kong

26 June 2002

After Bank of China (Hong Kong) was given clearance for its listing on the Hong Kong exchange, underwriters have valued the bank's market capitalisation after its planned initial public offering at HK$100 bn plus or minus 20%, giving it the third-biggest market capitalisation on the exchange after HSBC Holdings' HK$830 billion and Hang Seng Bank's HK$160 billion. The listing is due to take place on July 25 and aims to raise up to US$3 billion by selling 25% of the bank's existing shares.

Bank of China (Hong Kong) was formed last year through a merger of ten different Bank of China subsidiaries and affiliates in Hong Kong and Shanghai. It is expected to announce last year's results today, with the market expecting HK$2.7 billion net profit after taking into account more than HK$7.41 billion loan-loss provisioning.

However, a research report issued by sponsor Goldman Sachs yesterday caused some negative reactions in the market. The bank is the largest lender in the SAR, but according to the report, non-performing loans stood at 11% at the end of last year compared with the industry average of 4.5%, and the bank has heavy exposure property markets in the SAR, with 32% of lending to property development or investment concerns. Parent Bank of China says it has no plans to inject mainland banking assets into BOC (HK).

Goldman Sachs estimates that 33% of the bank's non-performing loans are to mainland-related borrowers at the end of last year, and 30 per cent of its mainland-related loan portfolio is non-performing. The brokerage - one of the lead managers of the initial public offering - estimates that a 10% fall in local property prices could result in a 48% reduction in net profit this year from the current estimate of HK$6 billion.

Despite such negative factors, fund managers on the whole are positive about the issue. One broker told the South China Morning Post: "You have the quality of credit card and property loans deteriorating in Hong Kong as a possibility, but China remains a driving force so that should be the interesting platform for the bank to grow on."

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