CHA China Telecom Corp Ltd

By Chuin-Wei Yap 

BEIJING--Postal Savings Bank of China Co. raised $7 billion from a star-studded roster of investors ranging from global financial institutions to domestic Internet giants, as the country's largest unlisted lender moved ahead with plans for a likely $10 billion initial public offering that would advance Beijing's corporate-reform agenda.

Postal Savings, the sixth-largest lender in China by assets, plans to list shares in Hong Kong next year, making it the largest Chinese bank aiming to go public in coming months, amid a wave of others. The trend comes as mounting bad debt and slowing economic growth cloud the outlook for Chinese banks as they need fresh avenues of funding.

Postal Savings said it sold a nearly 17% stake for 45.1 billion yuan to a group that includes foreign investors UBS Group AG, J.P. Morgan Chase & Co., International Finance Corp., Canada Pension Plan Investment Board, Singapore firms DBS Bank Ltd. and Temasek Holdings.

The group's Chinese members include Ant Financial Services Group, the financial affiliate of Alibaba Group Holding Ltd.; Tencent Holdings Ltd.; China Life Insurance Co. and China Telecom Corp.

Postal Savings and its investors said Wednesday that the deal would help its efforts to modernize corporate governance and financial management. J.P. Morgan Chase said it would provide support and expertise to Postal Savings.

"Postal Savings Bank needs to enhance its high-risk management capabilities as it faces complicated global and economic changes," said Postal Savings President Lu Jiajin, calling the deal the single largest strategic fundraising among Chinese financial institutions.

Postal Savings, a hybrid between a commercial and policy bank along the lines of Japan Post Bank Co., said foreign investors would help to broaden its international market and boost global business. Mr. Lu said the bank plans to list on both foreign and domestic exchanges. China's biggest banks are typically listed in Hong Kong and Shanghai.

With more than 40,000 branches all over China, Postal Savings has a network twice the size of Industrial & Commercial Bank of China Ltd., China's largest bank by assets. It has access to depositors across rural China and greater ability to reach borrowers that China's biggest publicly listed banks have traditionally shunned, including farmers and small-scale entrepreneurs. The lender says it already has expertise in microfinance, a segment of lending that targets small borrowers. It is also working to refine a suite of financial services including wealth-management products for its 490 million customers.

Ant Financial said it has been working with Postal Savings in recent years to develop microloans, among other items.

"Postal Savings Bank is ambitious," said Dragon Tang, an associate professor of finance at the University of Hong Kong. "It is an active player in the securitization market and is serious about risk management. Bringing the bank to IPO would be a milestone and can get [it] some political capital."

Postal Savings faces some challenges comparable with its Japanese peer, analysts say. It has a relatively high cost of staffing and maintaining its many branches. It faces competition in turning its sprawling network into a strategic advantage, as domestic e-commerce companies have already made inroads into developing electronic-payment systems nationwide. In its role as a sometime policy bank, Postal Savings is also obliged to finance projects that the government wants regardless of the project's returns.

The bank said in April it owns more than 6.3 trillion yuan in assets.

The IPO would also come as banks world-wide look to shore up their balance sheets to meet more rigorous stress tests. Mr. Tang said the IPO would help the bank meet Basel III regulations, a set of voluntary global limits on bank capital adequacy.

The amount of funds it is targeting for its IPO would depend on market conditions at the time of the launch, Mr. Lu said. Postal Savings is currently fully owned by the national postal service China Post Group Corp.

Midsize lenders have struggled in the past two months to overcome investor doubts, especially about nonperforming loans among Chinese banks. Bank of Qingdao raised $607 million last month, at the lower end of the expected price range. Bank of Jinzhou Co.'s IPO last month was also priced at the bottom of its range.

Bad loans reached 0.82% of total loans at Postal Savings at the end of September, the bank said Wednesday. That is well below the 1.59% average for commercial banks at the end of the third quarter, according to China Banking Regulatory Commission data.

Still, its bad-loan ratio at the end of 2014 was only 0.64%. Soured loans among Chinese lenders have risen for 16 consecutive quarters, and are at the highest level since September 2009.

Analysts say Chinese banks likely have more nonperforming loans than official data suggest because they extend loan maturities or find other means to avoid declaring them bad loans. Delinquent loans that banks haven't yet labeled as bad debt are nearly three times the size of nonperforming loans, according to data provider Wind Information Co.

Pei Li contributed to this article.

Write to Chuin-Wei Yap at chuin-wei.yap@wsj.com

(END) Dow Jones Newswires

December 09, 2015 02:29 ET (07:29 GMT)

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