5 Things To Know About China's Postal Savings Bank

Postal Savings Bank of China Co., the country’s sixth-largest lender by assets, raised $7.4 billion dollars in its Hong Kong initial public offering Wednesday. This makes it the biggest IPO globally since Chinese online shopping giant Alibaba Group Holding Ltd.’s $25 billion debut in September 2014. Here are five things to know about the Chinese lender.

#1: It is the biggest bank by branches in China

Postal Savings Bank has 505 million customers and operates more than 40,000 branches across pretty much everywhere in China, from isolated rural areas to Beijing and Lhasa. This means it has the biggest distribution network in the country’s banking industry with nearly double the number of branches run by Agricultural Bank of China Ltd., the country’s second-biggest by branches. The branches are mostly at post offices owned by China Post Group, its controlling shareholder.

#2: The company has some big-name investors behind it

A roster of high-profile backers bought $7 billion worth of shares in the bank in a pre-IPO round of financing in December 2015. These included J.P. Morgan Chase & Co., UBS Group AG, Canada Pension Plan Investment Board, Temasek Holdings, Alibaba’s financial affiliate Ant Financial and Tencent Holdings Ltd. It has touted these strategic relationships in its IPO pitch as a means of modernizing its business and bringing its performance more in line with its global peers.

#3: The bank is still relatively new to making loans

While China’s postal savings business began in 1919, the bank itself was only set up in 2007. This makes it the youngest of China’s large commercial lenders, and means it is relatively early in developing its loan book, another key selling point in the IPO. This also means it has a far lower ratio of bad loans to performing loans on its books. Still, some investors have expressed concern about its $37.2 billion exposure to China Railway Corp., its biggest borrower, which could face problems if China’s slowdown impacts the country’s construction of railways.

#4: Buying shares in the bank wasn’t cheap

Postal Savings Bank’s bigger Chinese state-bank peers trade at discounts ranging from 10% to 30% of book value, a company’s assets minus its liabilities. That means investors in Postal Savings Bank, which priced above book value, were being asked to pay a big premium for the Chinese lender’s shares. This is mainly because China’s state-owned companies follow an unwritten rule that they should price their IPOs at or above book value.

#5: It is shelling out more than $100 million in fees to its banks

Postal Savings Bank is set to pay out more than $100 million in fees to banks that worked on its IPO. While five lead banks including Goldman Sachs Group Inc. and Morgan Stanley are likely to receive the lion’s share of those proceeds, another 21 banks that worked in other roles on the deal will also be waiting in line to take their cut. Still, the offering would likely have been more expensive to launch in New York, where banks are typically paid a 6% to 7% fee for underwriting IPOs compared with the up to 1.6% of the funds raised that will go to underwriters of Postal Savings Bank.