Thursday, April 15, 2004

sigh.......well, the Chinese just put the breaks on the CCB IPO plan. I could've told you a few months ago when there was a lot of talk of the IPO. The problem, as the article below points out, is not just the NPL ratio, which really is quite low. According to the PBOC data I have, CCB NPL ratio really is as low as they announced. Of course, local branches hide a lot of NPLs from headquarters, which probably adds another 5-10% to the official figures. The government is saying that CCB is not ready, but I really think that the Chinese government also doesn't want to let go. Every Premier, including the current one, wants to have that giant cookie jar there to use, if not for "developing the west" then for national emergencies. This will make Liu Mingkang, the champion of these IPOs, look bad. This will also serve as a warning to scholars and analysts of the Chinese financial system: people like Liu Mingkang or any of the bank Presidents don't make real decisions. It is almost useless to listen to what they say, since what they say only reflects what they want, not what the State Council will ultimately decide.
Thursday, April 15, 2004
Beijing puts the brakes on bank's listing plan

China Construction Bank (CCB), the mainland's top property lender, is likely to delay its initial public offering to next year or later as top government officials and economists have expressed serious doubts about the bank's readiness.

This means the Bank of China (BOC), the mainland's top foreign exchange bank, may overtake CCB to become the first state bank to list sometime next year, according to people familiar with the two banks' plans.

CCB, which with BOC has received a combined US$45 billion capital injection from the central government, has said it will complete its restructuring by September and seek a listing, raising as much as US$10 billion, towards the end of this year.

The bank wants to list its shares simultaneously on the mainland and in Hong Kong and New York, setting a precedent for mainland firms.

But there have been growing indications that CCB's rush to list has caused considerable worries among the top leadership in Beijing and leading government economists.

Recent reports that US securities regulatory bodies are investigating China Life, the mainland's biggest life insurance firm, have also raised questions on whether it is wise for CCB to list in New York, which requires higher disclosure and regulatory standards.

Several people familiar with the bank's listing plan said there was little hope that CCB could come to the market this year.

"The earliest possible listing date could be sometime in the second quarter of next year, but many officials and economists have urged the central government to delay the listing even further, arguing that a hasty flotation would be extremely counter-productive," one source said.

Premier Wen Jiabao has expressed doubts about the capabilities of CCB's management and is believed to be undecided on the bank's listing schedule.

An influential mainland banker who declined to be named said there was little confidence in the bank's ability to transform, in such a short time, its decades-old operating structure to ensure it would run according to market forces.

"Chinese state banks should follow the model of Deutsche Bank, which spent at least five years putting its house in order before its IPO," the banker said.

Many economists have warned that a stock market listing cannot solve the structural problems that have plagued the banks for decades.

"I believe the pace of listing the state banks is too fast," said Zuo Dapei, a researcher at the Economics Research Institute of the Chinese Academy of Social Sciences.

"The Chinese are often like this - whenever leaders say something, officials do whatever it takes to do it, ignoring practical conditions."

Mr Zuo said the time was not right to float state banks.

"Bad loans are just one problem. A more important consideration is the quality of banks' management and whether management can cope with what is required of a listed bank. I have doubts about this," he said.

"Among the Big Four state banks, I believe BOC has the best qualifications to seek a flotation."

Unlike CCB, BOC reportedly plans to list only on the mainland's A-share market.

CCB officials said the bank had no news to report on its listing plan.

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