HONG KONG -- Dongguan Rural Commercial Bank fell as much as 17.8% in its market debut in Hong Kong on Wednesday amid waning investor interest in Chinese lenders exposed to the nation's embattled property developers. The weak start could dampen enthusiasm among dozens of companies preparing to list in the city.
Shares of DRC, China's fifth-largest rural commercial bank, opened 1% above the initial public offering price of HK$7.92 but quickly slipped as low as HK$6.51.
The lender had raised $1.2 billion in Hong Kong's largest new listing in over a month after pricing the offering at the bottom of the marketed range. The shares ended the morning session at HK$7.50.
"The Evergrande crisis and fear of China property contagion spreading to the broader financial system crippled investor appetite during the IPO," said a person involved in the transaction. "What we are seeing is the manifestation of the fears in the public market."
China Evergrande Group, the world's most indebted developer, has missed payments to banks, bondholders, suppliers and retail debt holders. It is due to pay $46 million in interest on a dollar bond on Wednesday after missing an $83 million coupon payment last week.
Given Evergrande's liabilities of more than $300 billion, investors are bracing for more losses across the property sector and counting the likely impact on the banking system. Several Chinese banks have publicly stated they are financially sound and that their exposure to the property market is manageable.
According to DRC Bank's prospectus, the real estate and construction sectors together accounted for almost a quarter of the bank's corporate loan portfolio as of March 31.
The bank, based in the Guangdong Province manufacturing hub of Dongguan, next to Evergrande's Shenzhen home, plans to use the IPO proceeds to boost capital levels and support business growth.
Companies have raised $35.9 billion in Hong Kong via new listings so far this year, the best nine-month performance since records began in 1980. But the market appears to be losing steam, with third-quarter listing volume just over half that generated in the second quarter.
Two-thirds of the 27 IPOs this quarter are trading below their issue price. Biopharmaceutical company Transcenta Holdings, which also debuted on Wednesday after raising $74 million, fell too.
Bonnie Chan, head of listings at the Stock Exchange of Hong Kong, said earlier this month that the pipeline of companies waiting to list had reached a record 220 candidates compared with 179 at the end of June. She said many were "optimistic" about getting deals done this year.
Investor confidence has been shaken this year as Chinese authorities have unleashed a barrage of regulations to limit the influence of internet platforms, rein in the clout of tycoons, ease leverage in the property sector and narrow the wealth gap. They have imposed record fines on technology companies such as Alibaba Group Holding and rolled out rules that making offshore listings harder.
Hong Kong has recorded a strong fourth quarter of IPOs in each of the past two years. The October-December period produced 60% of total volume for 2020 and nearly three-fourths of the 2019 total, according to Dealogic.
Companies that have applied to list in Hong Kong include Chinese artificial intelligence startup SenseTime, cargo courier 58 Freight, redevelopment company Shui On Xintiandi and Tencent Holdings-backed Ximalaya, China's biggest podcasting platform.