China's Postal Savings Bank says some retail investors opt out of Shanghai listing

By Cheng Leng and Engen Tham

BEIJING/SHANGHAI (Reuters) - Postal Savings Bank of China <1658.HK> said investors had opted out of paying for 3% of shares on offer in its Shanghai listing - a rare development that underscores growing concerns over problems in China's banking system.

Worries about the health of China's banking sector have grown this year after regulators seized control of Inner Mongolia-based Baoshang Bank in May, citing serious credit risks. That was followed by the rescue of four other regional lenders by state and local governments, hitting investor sentiment towards the sector.

China's biggest bank by number of branches is seeking up to 28.45 billion yuan (3.12 billion pounds) in the first part of the share sale, which was 79 times oversubscribed - a low level as mainland Chinese share offerings are often thousands of times oversubscribed.

A greenshoe option of 15% of shares, which needs to be exercised within 30 days of listing, could take funds raised to $4.7 billion.

PSBC said in a statement late on Tuesday that nearly all of those who decided not take up allocated shares were retail investors.

Unlike other major IPO markets, in mainland China investors are not required to pay before getting an allocation. Underwriters of the share sale will pick up the unsold shares.

Dai Zhifeng, an analyst at Zhongtai Securities Co, said he saw the problem as one of general investor wariness towards banking stocks rather than a reflection of PSBC's financial health per se.

Some recently listed banks are trading below their issue price, he noted. Zheshang Bank Co Ltd <2016.HK> <601916.SS> has lost 8% since its Nov. 27 Shanghai debut.

"Although it is under pressure, PSBC's share price should stabilise after the greenshoe option kicks in," he said.

PSBC Chairman Zhang Jinliang promised investors in an online roadshow last week that underwriters will take on shares in the greenshoe option if the bank's shares below their issue price in their first 30 days of trade - a measure which would "reduce the shares' initial volatility and stabilise the price."

PSBC is only the fourth company in China's A-share market to include a greenshoe option, analysts said.

It is conducting the listing at the behest of the central bank which wants state-owned lenders to be more responsive to the rigours of capital markets.

(Reporting by Cheng Leng in Beijing and Engen Tham in Shanghai; Editing by Edwina Gibbs)