Postal Savings Bank of China Seeks Banks to Underwrite $10 Billion IPO

HONG KONG—State-owned Postal Savings Bank of China Co. has kicked off preparations for its planned Hong Kong initial public offering, inviting banks to underwrite what could be this year's largest float in the city, according to people with knowledge of the matter.

The sixth-biggest lender in China by assets plans to raise $10 billion from the IPO by the end of the year, which would make it the largest IPO in the city for any financial institution since AIA Group Ltd.'s $20.5 billion float in October 2010, the people said.

It is also considering an IPO in China's domestic stock market within this year, two of the people said. Valuations in China's onshore stock market tend to be higher compared with Hong Kong.

It is unclear how much of the company will be floated.

Postal Savings Bank didn't respond to requests for comment.

The potential float comes at a volatile time for the Hong Kong and Chinese financial markets.

A short-lived circuit-breaker system in China and a weaker yuan have helped push the Shanghai and Shenzhen Indexes down more than 15% this year. The Hang Seng Index, which is heavily weighted by Chinese companies, is also down 11%.

The IPO market has also been weak. China suspended IPOs in June as part of the emergency measures to cope with a crashing stock market.

While regulators there temporarily allowed 28 companies to complete their approved listings by the end of 2015, more than 700 companies are still awaiting the IPO green light.

Bank IPOs in Hong Kong didn't sell well last year, as investors worried about the rising level of bad debt in China when the economy was slowing down. Three city commercial banks of much smaller scale all priced their IPOs at or near the bottom end of a price range when they went public in the fourth quarter.

Postal Savings Bank of China needed to enhance its high-risk management capabilities and hoped foreign investors would help broaden its international market and boost global business, its president, Lu Jiajin, said in December. The IPO would also help the bank meet Basel III regulations, a set of voluntary global limits on bank capital adequacy.

Even though Postal Savings Bank's IPO is coming at a difficult time, competition between banks to secure the mandate to advise it on its IPO is likely to be fierce, given the low number of flotations currently and the deal's potential size.

Banks have until Friday to respond to the lender's request for proposals.

China's "big four" banks—Agricultural Bank of China Ltd., Bank of China Ltd., China Construction Bank Corp. and Industrial & Commercial Bank of China Ltd.--are all listed in both Shanghai and Hong Kong.

Postal Savings Bank of China's nonperforming-loan ratio was 0.82% by the end of September, much lower than the average NPL ratio of Chinese commercial banks, which stood at 1.59% at the end of the third quarter, according to China Banking Regulatory Commission data. The bank's total assets reached 6.8 trillion yuan ($1.03 trillion) at the end of September.

The bank raised $7 billion from a star-studded roster of investors ahead of its IPO last month. It sold a nearly 17% stake to a group including foreign investors UBS Group AG, J.P. Morgan Chase & Co., International Finance Corp., Canada Pension Plan Investment Board, and Singapore firms DBS Bank Ltd. and Temasek Holdings.

The group's Chinese members include Ant Financial Services Group, the financial affiliate of Alibaba Group Holding Ltd.; Tencent Holdings Ltd.; China Life Insurance Co. and China Telecom Corp.

China International Capital Corp., which advised the stake sale, is working closely with the bank on the IPO, people with knowledge of the matter said.

Some of the strategic investors are expected to play a role in the IPO as well, the people said.

Postal Savings Bank of China has more than 40,000 branches all over China, twice the size of ICBC, the largest bank in China by assets.

(END) Dow Jones Newswires

January 19, 2016 00:45 ET (05:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.