Postal Savings Bank of China May Sell Minority Stake Before a Possible Listing

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One of China’s largest lenders, and potentially one of the world’s largest, based on the number of branches, is in talks with potential investors about selling a minority stake before a possible listing, according to a recent article in the South China Morning Post. The Postal Savings Bank of China has also been considering entering the peer to peer lending space as a way to facilitate lending to small firms.

A potential share sale by the Postal Savings Bank of China could be worth up to US$25 billion, matching Alibaba Group Holding’s record-breaking IPO in 2014, according to the Financial Times, citing unnamed investors. The Times also suggested that investors could include a financial unit of the Chinese e-commerce company, a US private equity firm and Asian sovereign wealth funds. While “Morgan Stanley was mandated to line up potential investors ahead of any listings,” a Morgan Stanley spokesman based in Hong Kong declined to comment on the pre-listing funding.

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As the South China Morning Post notes,

“Large Chinese banks are a rare species in the listing market as most state-level lenders have gone public in the past 10 years,” a source familiar with [the Postal Savings Bank of China] said. “Introducing foreign capital from strategic investors before a share offering is a necessary step before turning itself into a publicly listed company.”

While the cost of capital for state-owned enterprises has been steady at 7 to 9 percent since 2009, private companies have a rate well above 10 percent, according to Boston Consulting Group. This makes for an unequal competition.

China Yuan Renmibi

In January, Postal Savings Bank of China chairman Li Guohua said in a statement that “the country’s commercial banks needed to focus on lending to small firms as difficulties in obtaining finance had persisted for small businesses in the world’s second-largest economy,” according to the South China Morning Post. “Developing a peer-to-peer lending platform by commercial banks could be one of the solutions,” Li said.

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