The sale of 17 per cent equity marks the largest private fundraising by a Chinese financial institution, and its international collection of investors will be seen as a signal Beijing is more open to outside funds to help with its slow-moving plans to reform its state-owned enterprises.
Postal Savings Bank is China’s biggest unlisted lender and its sixth largest commercial bank in terms of assets. It has more than 400m retail customers and nearly 40,000 branches, many of them in rural areas where until recently the only alternative was putting money under the mattress.
A similar pre-float sale of a $17bn stake last year in the retail operations of Sinopec was sold largely to domestic investors — so-called friends and family — in spite of interest from international groups, denting hopes at the time that China was serious about bringing in outside expertise and funding.
Lu Jiajin, Postal Savings Bank president, on Wednesday described the placement as an “example of mutually beneficial co-operation between China and the world”.
He added: “This indicates that the world has . . . confidence in China’s financial systems and [the] stability and profitability of China’s banking industry”.
The international investors are UBS; JPMorgan; Singapore’s Temasek investment fund and DBS, the city-state’s biggest bank; Canada Pension Plan Investment Board; and the IFC arm of the World Bank.
CPPIB is committing $500m. Mark Machin, head of international business and president of Asia for CPPIB, said the investment met the fund’s strategic goals of investing in less-developed regions of China and increasing exposure to the Chinese consumer.
Chinese banks have come under pressure in a rapidly shifting landscape, and face challenges including rising bad loans and competitive pressures from the country’s interest rate liberalisation agenda.
Hong Kong-listed shares in the country’s big four state-backed banks — ICBC, Bank of China, China Construction Bank and Agricultural Bank of China — have dropped at least 17 per cent this year.
“This isn’t a sector bet, it’s an investment in this bank,” said Mr Machin, adding that Postal Savings Bank’s focus on consumer lending helped isolate it from some of the bad loan issues faced by corporate lenders.
Ant Financial, the payments affiliate of Alibaba; rival internet Chinese giant Tencent; China Telecom; and insurer China Life have also committed funds.
A filing with the Hong Kong stock exchange showed China Life is putting up $2bn and its stake will not be more than 5 per cent — implying a valuation of $41bn for Postal Savings Bank.
Pre-IPO funding rounds are increasingly being used as a way of establishing baseline valuations and demonstrating support for a company before it approaches the public markets.
JPMorgan said its agreement with Postal Savings Bank covered “multiple levels of collaboration” between the two sides.
An executive at one of the companies involved in arranging the deal said: “They have reached out to strategic partners who can help them professionalise rather than just have passive investors”.
Mr Lu said Postal Savings Bank wants to establish itself “as a 100-year bank with steady operations and excellent risk management”.
