HONG KONG (Reuters) – China-focused private equity fund Hopu Investment Management plans to invest up to $1 billion in China Minsheng Bank (600016.SS), a mid-sized lender aiming to raise $4.07 billion through its upcoming IPO in Hong Kong.
Hopu’s plan shows that the fund, run by Goldman Sachs Gaohua Securities Chairman Fang Fenglei and former Goldman banker Richard Ong, is turning its investment attention away from China’s big banks and toward mid-sized lenders.
Bank of America sold just over a third of its roughly 16.7 percent China Construction Bank stake worth $7.3 billion to investors in May, which included Singapore’s state-run Temasek Holdings [TEM.UL], China Life Insurance Co (601628.SS) (2628.HK) and Hopu.
Hopu bought $400 million worth of shares in Bank of China that Royal Bank of Scotland (RBS.L) sold in January. RBS sold its entire 4.3 percent stake in Bank of China for about $2.4 billion.
Now Hopu, with a $2.5 billion investment fund, plans to invest up to $1 billion in Minsheng, according to a source with direct knowledge of the deal. The source did not disclose how Hopu planned to fund the investment.
Of the Minsheng share offering, 90 percent has been allocated to institutional investors, or about $3.66 billion worth of shares, assuming the shares are priced at the top end of the indicative range. Hopu’s order size would represent 27 percent of the institutional tranche of the IPO.
The final quantity of shares Hopu is able to subscribe to will be determined after the IPO’s investor book closes on Nov. 18.
Minsheng’s IPO has attracted many tycoons and big funds to subscribe, as investors scramble to tap China’s surging economy and emerging, massive consumer sector.
Billionaire investor George Soros, Tiger Fund, Temasek, China Life Insurance and China Pacific Insurance Group, have committed to buy Minsheng’s shares from the institutional portion of its IPO, sources have told Reuters.
The Minsheng deal has attracted subscriptions for more than seven times the number of shares earmarked for institutional investors, the source said.
“The valuation of Minsheng is priced cheaper than its peers, as it hopes to leave about 20 percent room for investors,” said another source close to the deal.
At the proposed price range, Minsheng Bank is valued at 1.67 to 1.8 times 2010 post-shoe basis book value estimated by joint bookrunners.
By comparison, Bank of Communications (3328.HK), China’s No.5 lender, traded at about 2.17 times 2010 book value, while China Merchant Bank (3968.HK) and CITIC Bank (0998.HK) traded at 2.75 times and 1.66 times book value, respectively, according to a UBS research report.
The bank plans to set final pricing for its IPO on Nov. 19, and is scheduled to debut on the Hong Kong market on Nov. 26.
Minsheng is already listed in China. Its shares ended Tuesday trade in Shanghai at 8.54 yuan, down 0.23 percent.
UBS (UBSN.VX), BOC International, China International Capital (CICC), Macquarie (MQG.AX) and Haitong Securities are handling the Minsheng deal.
(Reporting by Michael Flaherty and Kennix Chim; Editing by Chris Lewis)