IPOs: Postal Bank Eyes Mega-Listing, 55Tuan Delays
Bottom line: A mega IPO by Postal Savings Bank next year is likely to attract little or no interest from private investors, while an upcoming IPO by 55Tuan could do slightly better but will still get only a lukewarm reception.
A couple of unattractive IPOs are in the headlines as China gets back to work after the Lunar New Year holiday, led by a massive plan by China’s Postal Savings Bank to raise up to $25 billion as soon as next year. While that plan may be a year or more away, a more advanced listing by group-buying site 55Tuan has failed to price its shares by a previously announced target date, leading some to speculate that the deal is running into trouble. Neither of these deals looks very exciting to me, and I suspect they won’t attract much interest from private investors either.
After a blockbuster year for major listings in 2014, the Year of the Sheep looks set to become a period for leftover IPOs that couldn’t compete with premium names like Alibaba (NYSE: BABA), Spring Airlines (Shanghai: 601021) and Dalian Wanda (HKEx: 3699). Both 55Tuan and Postal Savings Bank certainly fit the description of second-tier names, even though technically Postal Bank’s fund-raising target could break the record set last year by Alibaba for the world’s biggest-ever IPO.
According to a media report, Postal Savings Bank’s plan could see it introduce major strategic investors by the end of June, as part of a roadmap that could end with an IPO as early as next year. (English article) Under its current plans, it would sell 15 percent of its equity to those investors for about $6 billion, and has received approval for the plan from the Ministry of Finance. The bank is part of China Post Group Corp, and conducts business at 40,000 branches across China, most of those in post offices.
The math in this story doesn’t look quite right, since a 15 percent stake sale for $6 billion would value Postal Savings Bank at just $40 billion, making a $25 billion IPO seem unlikely. But whatever the case, there’s a strong reason why the bank would be the last of China’s major national lenders to list. Put simply, it’s mostly a deposit-taking institution rather than an actual lender. I suspect when we see some financials we’ll quickly discover that most of its deposits have been invested in conservative low-yield bonds rather than real loans that carry much higher returns and risk.
That doesn’t mean the IPO won’t attract some investors, and I’m sure some big state-run enterprises will be lining up to show their support. But unless Postal Savings Bank can suddenly produce some financials that show any hope for profit or revenue growth higher than 10 percent, I can’t really see any private investors getting too excited.
Meantime, 55Tuan looks equally uninspired and has now officially missed its previous target for pricing its IPO shares on Wednesday. The company gave the February 25 date in a previous public filing for its plan to raise up to $65 million, and hasn’t provided any explanation for why it missed the date. At least one media report noticed 55Tuan’s failure to meet the deadline, and cited an unnamed source blaming legal delays related to company stock options. (Chinese article)
It’s certainly not unprecedented for a company to miss this kind of deadline, especially since its target pricing date comes just days after China returned to work following the week-long Lunar New Year holiday. But 55Tuan’s IPO has never been that smooth, in no small part because the company is losing money and is a decidedly second-tier player behind the highly profitable Meituan and Dianping, which are both still private.
I previously gave the 55Tuan deal a 50-50 chance of making it to market, but would probably raise that now to an 80 percent chance of success since the offering has come this far. Still, this kind of delay isn’t really the best signal to boost investor confidence, and I do suspect the offering will attract limited interest and probably price in the middle to lower end of its range.
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