Share Rout Set to Delay China Banks’ Hong Kong Listings
China's banks have been dealt a further blow as falling share prices put on ice a number of potential new Hong Kong listings.
Several smaller Chinese commercial lenders had been planning Hong Kong stock market debuts this year or early next year, including Bank of Shanghai, Guangfa Bank, and Bank of Chongqing.
However, little known regulations on bank capital raising, set by Chinese regulators, prevent mainland banks from raising funds in the equity markets at a price that values the company at a price-to-book ratio below one, an indication that investors do not believe the stated worth of a company's assets.
(Read More: China Banking Regulator Insists Liquidity Sufficient)
With almost all similar midsized banks trading well below that level after the recent rout in Chinese shares, new issuers are now likely to find themselves locked out of the market, according to people with knowledge of the listing rules.
Investor confidence in China has been severely knocked by the recent liquidity crunch on the mainland, during which interbank lending rates spiked to record highs of more than 25 percent at one point. Growth downgrades and concerns that government efforts to tighten credit conditions will hit company earnings have also had an impact, as has the global retreat from emerging markets.
(Read More: Why China's Economy May be Heading for a Crash)
The pricing issue also raises doubts about whether China Everbright Bank can proceed with its already twice-delayed Hong Kong listing.
Last week the Shanghai Composite fell below 2,000 points for the first time since December, hitting a 4½-year low and slipping into bear market territory in the process. On just one day – last Monday – the index fell 5.3 percent. Financials have been among the worst hit, especially those reliant on the wholesale markets for funding.
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China Minsheng Bank has lost 24 percent in Hong Kong in the past month alone, while on the mainland, Shanghai Pudong Development Bank has shed 22 percent.
The sell-off in Chinese shares has already had an impact on the new listing market in Hong Kong. Casino operator Macau Legend first postponed, then downsized its initial public offering, while a number of others have put their deals on hold.
Meanwhile the IPO market in Shanghai has yet to reopen from what was, in effect, a shutdown that began last year, as regulators have sought to clear a waiting list of nearly 900 companies.
(Read More: Goldman Sees No Rebound for Chinese Stocks)
Some analysts have attributed the poor performance of the Chinese market to fears that a flood of new issues would sap liquidity from the rest of the market.
Authorities have also issued new rules to improve the listing process, which had raised hopes that the market would soon reopen.
However, the recent volatility has cast fresh doubt on whether regulators are ready to give companies the go-ahead to raise new funds on the mainland.