By Julie Zhu and Elzio Barreto
HONG KONG (Reuters) - Shares in Postal Savings Bank of China (PSBC) made a flat debut in Hong Kong after the state-owned lender raised $7.4 billion in the world's biggest initial public offering in two years, priced the deal near the bottom of its marketing range.
Wednesday's lukewarm start for PSBC comes as investors remain cautious on the outlook for the Chinese banking industry, battling with mounting bad debts amid a slowing economy. Retail demand for the IPO by the last of China's big banks to go public was modest, and three-fourths of the offer was pre-sold to "cornerstone" investors - mainly other Chinese state-owned companies..
The PSBC listing marks the end of a wave that started more than a decade ago, with the IPOs of China Construction Bank Corp (CCB) and Bank of Communications Co Ltd (BoCom). With a market capitalisation of about $50 billion, PSBC ranks far behind China's "Big Four" banks, each valued at between $120 billion and $225 billion.
At 0300 GMT, PSBC shares were trading at HK$4.77, a fraction above the IPO price of HK$4.76, while the benchmark Hang Seng index was down 0.7 percent. The lender had priced 12.1 billion new shares near the bottom of a range of HK$4.68-HK$5.18 per share.
The portion of the offer set aside for retail investors - a key metric for judging investor interest in Hong Kong IPOs - was oversubscribed just 2.6 times, PSBC said in a filing on Tuesday, a comparatively low number. The institutional tranche was heavily oversubscribed, the bank said.
The lender had counted on its extensive network of more than 40,000 branches across China and a low level of non-performing loans to attract investors. But many fund managers saw the deal as too pricey: PSBC's marketing range valued the bank at a price-to-book ratio for 2016 of 0.94 to 1.02 times, far higher than the average of 0.76 for Hong Kong-listed lenders.
PSBC's deal was the world's biggest IPO since Chinese e-commerce giant Alibaba Group Holding Ltd's $25 billion New York listing in 2014, and fee-hungry investment banks had counted on the deal to boost revenue amid a slump in new listings in the Asia-Pacific region.
The 26 banks handling PSBC's offering stand to jointly earn up to $118.4 million in fees, according to the PSBC prospectus.
(Reporting by Julie Zhu and Elzio Barreto; Editing by Denny Thomas and Kenneth Maxwell)
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