Banking & Finance

China’s “most special bank”

Proceeds from Hong Kong listing could benefit Chinese SME

China’s “most special bank”

Dong: clearly happy about listing

Dong Wenbiao may be hoping it’s a case of third time lucky. Minsheng Bank’s chairman has tried to list the financial firm in Hong Kong on two prior occasions. The first attempt was postponed in 2004. The second was pulled in 2005 as deteriorating market conditions dented valuations.

But with the bank now roadshowing to investors for a third time, Dong is counting on the $4 billion IPO finally proving a success.

That’s because Minsheng needs the capital. Its capital adequacy ratio has fallen to 8.5% – the second lowest among China’s 14 listed banks (Minsheng is already listed in Shanghai). And that ratio is constraining the bank’s ability to lend at a time when the Chinese economy is fast rebounding from the financial crisis. A listing will lift the capital threshold to more than 11%.

Dong can take heart that the international tranche is already three times oversubscribed – with Middle Eastern investors subscribing for more than $1 billion of the offering, according to the South China Morning Post.

Minsheng also offers international fund managers a unique investment story.

With $167 billion of assets and 400 branches, it is not the biggest bank in China by any means.

But its status as a privately-controlled bank sets it apart – especially in a landscape dominated by state-owned entities.

Minsheng was founded in 1996 by Liu Yonghao – the entrepreneur behind the giant New Hope Group (see WiC32) – and Jing Shuping, a ‘Red capitalist’.

As the country’s first private sector lender since 1949, this made it – from the outset – a “most special bank”, reports the China Times.

Jing – who died in September at the age of 91 – was a legendary figure in the Chinese business world, and he provided the requisite political air cover to get the venture off the ground.

The bank grew quickly, with a focus on lending to the nation’s large private sector firms.

As Jing told FinanceAsia in 2002: “The bank’s freedom from government interference has been a major competitive advantage. The government gave us the status of an experiment. We don’t have to hand out loans on local or central government demand, like the state banks.”

In 2006 Jing stepped down due to ill health and Dong – then president – was promoted to the chairmanship.

From its founding to the present day, Minsheng’s assets have grown 160-fold.

Since taking the helm, Dong has introduced new initiatives designed to propel the next phase of growth. Powerful branch presidents have been stripped of credit authority; the corporate bank has been split into industry groups which control lending relationships and the cross-selling of products; all pay has been made heavily performance-related; and branches have been refocused on consumer banking. The goal is to grow retail banking from a single digit proportion of net income to 30% of profits within three years.

And as to utilising that new Hong Kong-raised capital for profitable new lending, Dong also plans to boost loans to small and medium-sized private companies.

His “new model” will seek to offer more flexible lending products to smaller firms, charging SMEs anywhere between 7% and 23% to borrow. This is a departure from the current commercial banking practice of charging a flat 7% (but rarely granting the SME applicant the loan).

Investors will note that not all of Dong’s ambitions have worked out. Minsheng’s plans to expand beyond China’s borders were dealt a blow last Friday when United Commercial Bank, a large San Francisco lender became the 120th US bank to fail this year.

Minsheng owned 9.9% of United Commercial and has written down 93% of the $126 million that it has invested over the past two years.

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