Chinese banks delay Hong Kong IPOs

Blame it on falling share prices.

Bank of Shanghai, Guangfa Bank and Bank of Chongqing, among other small commercial lenders, had been planning Hong Kong stock market debuts this year or early 2014. Falling share prices, however, have put a hold on their listings and those of other lenders.

Investor confidence in China was severely hammered by China’s recent liquidity crunch during which interbank lending rates spiked to record highs of more than 25% at one point. Company earnings will be under pressure from concerns that government efforts to tighten credit conditions. The global retreat from emerging markets is also a downside risk.

Little known regulations on bank capital raising set by Chinese regulators prevent mainland banks from raising funds in the equity markets at a price that values the company at a price-to-book ratio below one. This means investors do not believe the stated worth of a company’s assets.

With almost all similar mid-sized banks trading well below that level after the recent rout in Chinese shares, new issuers are now likely to find themselves locked out of the market.