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China's Bank of Guizhou looks to raise up to HK$5.74B in Hong Kong IPO

Chinese city commercial lender Bank of Guizhou Co. Ltd is looking to raise up to HK$5.74 billion through its planned IPO in Hong Kong, as it seeks to stabilize narrowing margins amid the Chinese government's push to liberalize interest rates.

The bank is offering 2.2 billion shares at an indicative per-share price range between HK$2.46 to HK$2.61. The IPO will open Dec. 16 and close Dec. 19, before shares begin trading on Dec. 30, Chairman Li Zhiming said at a Dec. 13 media briefing.

Bank of Guizhou aims to improve its asset-liability structure, reduce funding costs and expand its wealth management business to stabilize its margin level, said Zhou Guichang, board secretary of the bank. The bank's net interest margin dropped to 2.74% as of June 30, from 2.82% and 2.78% as of Dec. 31, 2018, and June 30, 2018, according to its prospectus.

"[A decline in NIM] is inevitable in China's banking sector, as the authorities push for liberalization of interest rate," Zhou said, adding that the country's introduction of new benchmark lending rates is putting additional pressure on the lender's margins.

At the same time, the bank has been facing a decline in capital adequacy ratios. Its core Tier 1 capital adequacy ratio fell to 10.31% as of June 30 from 10.62% as of end-2018 and from 10.93% as of Dec. 31, 2017, according to the bank's filing. It reported a capital adequacy ratio of 12.51% as of June 30, down from 12.83% as of end-2018 but up from 11.62% at the end of 2017.

The IPO, according to Zhou, is expected to substantially improve the bank's capital levels and financing channels. The bank plans to use proceeds from the IPO to replenish its capital.

Despite the declining margins, the bank's net profit for the six months ended June 30 rose year over year to 1.79 billion yuan from 1.46 billion yuan. Meanwhile, the bank managed to improve asset quality by strengthening risk management, Li said. Nonperforming loan ratio improved to 1.09% as of June 30 from 1.36% as of end-2018 and 1.60% as of end-2017.

Bank of Guizhou's IPO plan came amid investors' concerns over higher NPL ratios at Chinese city and rural commercial banks following the government's bailouts of several such banks. In May, regulators said they will take over Inner Mongolia-based Baoshang Bank Co. Ltd. in view of the lender's high credit risks, marking the first direct takeover of a bank in two decades. In the following months, the government followed up with similar bailout measures for Bank of Jinzhou Co. Ltd. and HENGFENG BANK CO. Ltd.

As of Dec. 12, US$1 was equivalent to 7.01 yuan.