China’s looming $8-bn IPO has risks tied to shadow banking

Shanghai, July 5: Postal Savings Bank of China, the company preparing for an initial public offering that may raise $8 billion, has plunged into shadow-banking arrangements that could make investors question its reputation as sleepy and safe.

The Beijing-based lender, ubiquitous in small-town China, disclosed 953 billion yuan ($143 billion) of interbank investments in “special purpose vehicles” in a prelisting document filed to Hong Kong’s stock exchange on Monday.

Those holdings of wealth managementproducts,trust investmentplans,assetmanagement plans and securities investment funds have almost doubled since 2014 and are up more than 500% since 2013. The lender didn’t immediatelyrespondtoanemail seeking comment.

“I think this is a temporary maneuver aimed at boosting its earnings before the IPO,” said Wei Hou, a Hong Kong-based analyst at Sanford C Bernstein & Co “During its future roadshows, this will be an area that investors will focus on in terms of the scale and long-term strategy of such an exposure.”

The bank, which will be the last of China’s big lenders to list, is seeking to raise $8 billion in what could be the world’s largest IPO this year, according to people familiar with the matter.

Postal Savings Bank has followed mid-sized and smaller lenders in piling into the arrangements, which can be used to skirt capital and provisioning requirements. The deals can also channel money to borrowers who don’t qualify for loans, such as businesses in industries with overcapacity, such as coal and steel. The intermediaries include securities firms, trust companies and other banks.

Bloomberg