BoC Falls Less Than 10% On Listing

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

26 July 2002

Bank of China Hong Kong (Holdings) shares slipped 4.7% yesterday in spite of heavy support from underwriters who had unsatisfied orders held over from the allotment process.

Shares in the SAR's second-largest bank closed at $8.10, down 40 cents from their issue price of $8.50. Analysts said that many retail investors, who had been given a discount of 10% on the institutional allotment price of $8.50, would not be long term holders, and would take any profit, however small, once they saw that the shares were not going to out-perform.

Given the appalling conditions in worldwide equity markets earlier in the week, BoC's launch was thought successful by many commentators. BoC Hong Kong chairman Liu Mingkang was philosophical at the listing ceremony: "We may still witness further fluctuations, but in the long run the lessons drawn from those issues and scandals will be a good thing," he said. "I am confident in our [share price] performance in the long run."

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. The bank is the largest lender in the SAR, but according to a Goldman Sachs research 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.

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