Bank of China shares surge on stock market debut

Bank of China shares made a storming debut on the Hong Kong stock exchange yesterday in its $9.7bn (£5.2bn) flotation, the world's largest in six years, despite recent volatility in global equity markets.

Shares in the bank were priced at $2.95 and rose as much as 16.1 per cent before ending the day at $3.40, up 15.3 per cent. The share rise came against a poor performance by the Hong Kong benchmark Hang Seng index which dropped 1.3 per cent yesterday.

Most analysts and investors had expected the shares to rise by only 5 to 10 per cent on their first day of trading.

Bank of China, the country's second-largest lender, sold nearly 25.57 billion shares, or 10.5 per cent of its enlarged share capital, and plans to use the proceeds to strengthen its capital base and grow the business.

The shares attracted huge demand: they were 70 times subscribed by retail investors in Hong Kong and 20 times by international institutions.

Institutional investors included Mitsubishi UFJ Financial Group, which became the first Japanese lender to take a stake in a Chinese bank and picked up a stake worth $180m.

The initial public offering, China's largest, bodes well for other Chinese banks that are planning to list in the next year. The country's biggest lender, Industrial and Commercial Bank of China, is expected to list at $10bn this year. Shares in Bank of Communications and China Construction Bank have stormed ahead since listing last year.

The float marks a further milestone in Beijing's efforts to clean up its banking sector, long regarded as a weak link in the country's booming economy.

The government hopes that selling shares in the previously state-owned banks and bringing in overseas investors will impose market discipline and improve corporate standards.

Bank of China was embroiled in two banking scandals last year and has also struggled with bad loans. The resignation of its chief risk officer Lonnie Dounn last week sparked fresh concerns.

The Chinese lender's buoyant debut leaves Royal Bank of Scotland sitting with a stake worth three times its original investment in the bank, but knocked the UK group down a place in the global bank rankings.

Last August, RBS led a consortium taking a 10 per cent stake in the bank. It paid $1.6bn for its share of the stake then but the holding was diluted by the float, leaving it with a stake of 4.4 per cent, now worth $4.7bn.

Yesterday's share rise valued Bank of China at $106.7bn, ranking it as the world's eighth-biggest bank, ahead of RBS which dropped into ninth spot.