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SHANGHAI: China Everbright Bank's plan to raise up to $2.9 billion in a
Shanghai IPO has been approved by the securities regulator, two sources
said, in what will be the latest Chinese bank to try and tap markets for
funds when conditions are still favourable.

Everbright Bank, China's 11th biggest bank by assets, would sell up to
6.1 billion shares in the initial public offering, said the sources.
Both had direct knowledge of the matter but spoke on condition of
anonymity because they were not authorised to comment publicly. The
China Securities Regulatory Commission gave the nod to the IPO on
Monday, the sources said.

This month, China witnessed the world's second-biggest IPO when
Agricultural Bank of China completed its $19 billion dual-listing in
Shanghai and Hong Kong. "The Everbright Bank IPO is far smaller than
Agbank's and fundraising pressure from the banking sector has largely
been digested," said Victor Feng, analyst with Everbright Securities in
Shanghai. "The IPO will have limited impact on the market." Most Chinese
lenders are experiencing a serious capital squeeze after a lending binge
last year to support the government's 4 trillion yuan ($590 billion)
economic stimulus and as the banking regulator tightened capital rules.
Top state-controlled lenders, such as Industrial and Commercial Bank of
China (ICBC), Bank of China and China Construction Bank, have said they
will ask shareholders for billions of dollars to replenish their
capital. Like their larger rivals, smaller regional banks such as Bank
of Shanghai and Guangdong Development Bank, are also eyeing a listing
this year.

Bank of Shanghai plans to sell up to 1.2 billion shares in an IPO but
the bank has yet to submit its application to the CSRC, local media
reported in May. In April, Guangdong Development Bank, in which
Citigroup owns a stake, launched a 15 billion yuan private placement.
The bank, based in the southern manufacturing hub of Guangdong, has said
it would list itself by 2010.

STRATEGIC INVESTORS

Spooked by a flurry of giant share offerings, the Shanghai Stock market
fell nearly one-third in the first half of the year, making it one of
the worst performers globally. In a move to reduce its impact on the
domestic stock market, Everbright Bank will place out about half of the
IPO to strategic investors, the official Securities Times reported over
the weekend, citing unidentified sources. The bank's Beijing-based
spokesman Shen Chunhua confirmed that it would place out part of the IPO
to strategic investors. He added it had no immediate plan for a listing
in Hong Kong. "For now, we will focus on the Shanghai IPO," Shen said.
"The strategic placement is part of arrangements under the IPO. We are
still working on it; it's too early for us to name any potential
investors," he added.

Controlled by Central Huijin, the investment arm of China's sovereign
wealth fund, Everbright Bank could face a big capital shortfall in the
next three years without the IPO, the bank said in a draft prospectus
issued on Thursday. The bank's capital adequacy ratio, a key measure of
lenders' ability to absorb potential losses, stood at 10.39 percent at
the end of last year, compared with the 11 percent minimum required for
mid-sized listed lenders. If it exercises an an over-allotment option,
the offering would potentially be expanded by 15 percent to 7 billion
shares, the bank said.

Based on its net assets per share of 1.44 yuan at the end of 2009, if it
sells shares at a price-to-book ratio of around two times, which is
typical for mid-sized Chinese banks' IPOs, it would be able to raise
about 20 billion yuan after the overallotment. The lead underwriters for
the Everbright Bank IPO are China Jianyin Investment Securities, Shenyin
& Wanguo Securities Co, and China International Capital Corp (CICC), in
which Morgan Stanley holds a stake that it is planning to sell.

Arlene R. Busch
abusch@contegocapital.com
312.202.0205 Office
312.498.9595 Mobile