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China's biggest IPO in four years faces a woeful start ahead of debut as a record number of investors decline their allotments

Yujing Liu yujing.liu@scmp.com

China's biggest initial public offering in four years faces a woeful start ahead of next week's trading debut by Postal Savings Bank of China, as a record number of investors declined to take up their allotted shares.

Onshore traders backtracked on 119 million allotted shares worth a combined 653 million yuan (US$92 million), or 2.3 per cent of its secondary issuance on the Shanghai Stock Exchange, according to a filing. This was the largest withdrawal since investors turned their backs last month on China Zhejiang Bank, causing the regional lender's shares to fall below their offer price on the second day of trading, in the biggest listing flop in seven years on the bourse.

"The number of investors who subscribed online and then backed out is especially high, implying that retail investors are quite pessimistic about the company," said Cui Xin, strategic analyst at China Galaxy Securities. "The overall sentiment on IPOs is quite gloomy."

The snub casts a pall over what should have been a high point for the bigger of China's two stock markets, as the Beijing-based bank that manages China's largest branch network with 39,680 outlets goes to market to raise 28.4 billion yuan. The reception mirrors the lender's US$7.3 billion fundraising in Hong Kong in 2016, which became one of the worst debut performers among giant IPOs when its shares rose by a mere 0.2 per cent when they began trading.

Postal Savings Bank, which began life as a deposit-taking subsidiary of the nation's postal service, isn't alone in the doldrums. Dozens of new banks and technology start-ups have fizzled in their trading debuts on the Star market in Shanghai, with their share prices falling below their offered prices, in stark contrast to the buzz and spectacular gains that used to greet first-day trades.

China's securities regulator has had a hand in letting the air out of the bubble, with its recent relaxation of listing rules, which hastened the pace of companies going to market and increased the supply of new stocks in the market, Cui said.

"This suppressed the returns of IPOs, and investors are becoming more cool-headed about them," he said.

Postal Savings Bank, China's fifth-largest bank by assets, could raise an additional 4.3 billion yuan if it chooses to exercise the so-called greenshoe option in full, which allows a company to sell extra shares to underwriters to stabilise share price in the 30 days following a listing.

The lender's unusual greenshoe arrangement " it is the fourth company in A-share market's history to use the mechanism " may have also scared away some investors, amid concern that a possible increase in shares would dilute earnings after the listing, Cui said.

Under the current system, Chinese investors do not need to freeze their capital or pay in advance for new share subscriptions. If they fail to pay for the allotted shares three times, they will be barred from taking part in new shares for six months.

On popular online investment forum Xueqiu, many traders complained what they see as unfairly high valuation level of Postal Savings Bank. Some also said the withdrawal is a gesture to signal their dissatisfaction with the recent surge in new shares.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.