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Fresh Chinese Bank IPO Turns Sour in a Hurry

China’s Bank of Tianjin raised close to $1 billion in its Hong Kong IPO this year.
ENLARGE

China’s Bank of Tianjin raised close to $1 billion in its Hong Kong IPO this year.


Photo:

Reuters

By

Jacky Wong

April 11, 2016 2:22 a.m. ET

Facing a 799-page initial public offering prospectus, investors might be tempted to skim over a company’s “risk factors.” For Bank of Tianjin,
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that would have been a big mistake.

The Chinese bank, which counts Australia & New Zealand Banking Group
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as its second-largest shareholder, said Friday that a “risk incident” at its Shanghai branch would put 786 million yuan ($122 million) in peril. That is particularly disconcerting as it comes just over a week after Bank of Tianjin raised close to $1 billion in its Hong Kong IPO.

The company provided scant details, but said the incident was related to “notes held under resale agreement.” These notes, sometimes called discounted bills, are unsecured short-term IOUs that are traded among banks. They are usually physically stored in bank branches, which make them susceptible to fraud and embezzlement.

The IPO prospectus warned that the bank “cannot assure you that our internal control policies and procedures can always be effective,” including those related to “potential fraud in relation to mismanagement of bills held for resale.”

This is at least the third case this year involving Chinese banks and resale bill fraud. Agricultural Bank of China
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disclosed in January an incident involving nearly four billion yuan of notes. A few days later, Citic Bank said it was assisting the police in an investigation involving 969 million yuan of bills.

Investors were already skeptical of Bank of Tianjin. The IPO was undersubscribed. Seven cornerstone investors, two of which were linked to the bank’s existing shareholders, took up nearly 60% of the offer shares. Including ANZ, which owns a 12% stake, eight shareholders own three quarters of the bank’s Hong Kong-listed shares.

Part of the lack of interest might have been because of valuation rather than risk factors. The bank trades at 1.06 times book value, compared with 0.7 times for the biggest state-owned banks.

Expensive and risky are hardly good reasons to invest.

Write to Jacky Wong at [email protected]

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Fresh Chinese Bank IPO Turns Sour in a Hurry Reviewed by on . ENLARGE China’s Bank of Tianjin raised close to $1 billion in its Hong Kong IPO this year. Photo: Reuters By Jacky Wong Jacky Wong The Wall Street Journal CANCE ENLARGE China’s Bank of Tianjin raised close to $1 billion in its Hong Kong IPO this year. Photo: Reuters By Jacky Wong Jacky Wong The Wall Street Journal CANCE Rating:
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