<<so I will buy some of this, for hopefully a quick gain, at least not a loss>>
... because
markets.scmp.com
Wednesday, July 24, 2002
MARGIN CALL
Battle lines drawn as backers of BoC brace for pre-emptive sell-off
JON OGDEN
Get set for a war of attrition. We are not talking about the United States Marines landing in the backyard of one of Saddam Hussein's palaces. We mean the push and shove that is set to occur when BoC Hong Kong (Holdings) begins trading tomorrow.
Lined up on one side will be jittery retail investors and fund managers aiming to lock in quick profits - or limit their losses.
On the other side will be "friendly" institutions who will "patrol" the newborn stock in its first few days of life, aiming to keep its head from dipping below the initial public offering (IPO) price.
There is nothing that quite generates market chatter like an IPO. When it is a big IPO like BoC Hong Kong's HK$22.1 billion fund-raising exercise, the rumours are fairly flying.
All thoughts are now on how the stock is going to perform and who is going to win the battle. The retail investors who will be holding 35 per cent of the 2.29 billion shares sold in the offering will be split down the middle. Half may be some of the bank's loyal army of depositors who may be happy to hold on to a small chunk of the institution through thick and thin. The rest will be punters of either the hard-core or occasional variety who will be glued to 2388.HK's price ticker all day, with one finger poised over the speed-dial button for their broker.
The retail investors, of course, have a 5 per cent discount to the institutional asking price of $8.50, so they could eke out a small profit even if the stock dipped below the offering price.
Institutional investors themselves have been ambivalent about the offering and some will also be looking for a quick exit.
BoC Hong Kong's fundamentals are questionable, with return on assets, non-performing loans and return on equity the worst among peer Hong Kong banks. And with the $8.50 price at the upper end of fund managers' expectations, a good deal of the improvement that the bank is promising in terms of its financial performance is already priced in. The bank gave a rather inauspicious signal in that regard when it reported on Monday that first-half profits had slumped 36.7 per cent.
"I got nothing but I'm not regretting it," said Peter Chau Ming-tak, a fund manager at TAL CEF Global Asset Management, who made a low bid during the book-building process. "The pricing at $8.50 seems too expensive. They did not leave anything on the table."
Other fund managers who will receive an allocation could well be tempted to unload at least part of their holdings pretty sharply, particularly given the rainstorm Wall Street is unleashing on global markets.
But Bank of China is hardly without friends to help prevent the $8.50 dyke being breached - and the loss of face that would entail.
Having marshalled 20 Hong Kong tycoons into pledging to buy into the IPO, efforts are now being made to get brokerages on side for the after-market, according to market sources.
One rumour has it that China Everbright has been told to get together a $6 billion war chest to support the offering. BoC chairman Liu Mingkang is a former Everbright executive, though there is no way of knowing if there is any truth in the chatter. Market talk also has it that other mainland companies have been told to "do their patriotic duty". The quid pro quo is that help rendered now will be remembered later when applications are made for loans.
None of this would raise the eyebrows of seasoned market watchers. It is an open secret that friends with deep pockets are almost essential in these dark market days if an IPO is to be successful in the after-market. For example, sponsor Salomon Smith Barney was rumoured to have mounted a vain last-ditch defence for CK Life Sciences International (Holdings) before Li Ka-shing's bio-technology vehicle fell below its $2 offering price.
"It's quite common for some brokerages to support a stock after its listing," said Kenny Tang Sing-hing, associate director at Tung Tai Securities.
Bank of China has one other ace in the hole in the form of the greenshoe option which has been exercised.
Institutional buyers have pledged to take 344.76 million shares 30 days from now at the issue price. If the price threatens to go under water before then, BoC has the option of buying those shares on the market rather than issuing new ones, giving the counter another leg up on the market cliff face.
Finally, the bank will have some other silent allies in the shape of index-tracking funds which may buy the stock in anticipation of its inclusion in key benchmarks put out by FTSE and MSCI.
As with any war, there are heavy-duty implications riding on the outcome of this one. If BoC and friends cannot hold the line it will put a damper on the pace and pricing of subsequent privatisations and asset sales orchestrated from Beijing. |
