Everbright shares sink on debut

Since the PBOC stopped daily open market operations, which push money into the market, interest rates in the interbank bond market have surged. On Wednesday, some interbank offered rates broke records set during the credit crunch in June, raising fears of a new squeeze.

During the cash crunch in June, two of Everbright's branches failed to repay short-term interbank loans totaling 6.5 billion yuan to another bank. The lending bank agreed that the two branches could repay the loan in full on the next day (June 6), which was done accordingly.

In response to the incident, the bank boosted risk management measures in the second half of the year.

"We have emphasized among our departments the overriding importance of sound liquidity, increased our reserve level and arranged for stronger short-term liquidity commitments, as well as implemented further upgrades to our internal controls to mitigate potential operational risk," said the bank in its prospectus.

"It's not a surprise to see Everbright Bank's share price tumble. This bank is not among those with special selling points," said Hannah Li, an analyst at Sun Hung Kai Financial.

"The Hong Kong stock market has a lot of choices of mainland banks. Even stocks with clearer selling points such as Huishang Bank and Bank of Chongqing failed to achieve ideal share prices. Let alone Everbright Bank."

Investors also harbor doubts about whether the mainland banking sector has peaked.

Interest rate liberalization looms, as does more competition from private banks. "The market is concerned about the asset quality of mainland banks, as the local government debt is quite phenomenal.

"Next year, it will be harder, especially for small and medium-size banks, as interest margins are contracting," said Li.

She added that, though the price-to-book ratio of Everbright Bank is about 0.9, it's still expensive compared with its peers. The Bloomberg 2013 estimated P/B ratios for China Citic Bank, Chongqing Rural Commercial Bank Co Ltd and Bank of Communications Ltd are 0.67, 0.74 and 0.73 respectively.

"The average price-to-book ratio for mainland banks except the big four is 0.86, which should be the reasonable level for Everbright," she added.

However, Li said less than satisfactory performances of share prices in the banking sector won't deter more mainland banks from seeking IPOs in Hong Kong in 2014, because this year all the newly listed banks have been heavily oversubscribed.

"From the companies' point of view, the result is acceptable and the fundraising is successful," she said.