"Frequent SME Bank Equity Transfers: HuaXing Bank's 500M Shares on Sale at 70% Discount"
Recently, the Alibaba Judicial Auction website announced that on October 28th, 175.8 million shares of Guangdong Huaxing Bank Co., Ltd. (hereinafter referred to as "Huaxing Bank") will be auctioned at a starting price of 70% of their assessed value.
The reporter combed through and found that as of October 9th, this year there have been more than 4,000 auctions involving bank equity on the Alibaba Judicial Auction website, with small and medium-sized banks being the main focus. In terms of characteristics, the auction of equity in small and medium-sized banks shows a clear division between hot and cold.
Interviews with journalists revealed that the division in the transaction of equity in small and medium-sized banks is significantly influenced by multiple factors, such as operational factors, regional factors, and shareholder factors. To enhance their own equity value, small and medium-sized banks need to start from corporate governance, strengthen strategic management and risk management, and improve their competitive differentiation.
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Frequent Transfers
The shares of Huaxing Bank being auctioned this time have an assessed value of 568 million yuan, with a starting auction price set at 397 million yuan, equivalent to 70% of the assessed price. The Intermediate People's Court of Wuxi City, Jiangsu Province, publicly stated that the pricing basis for this auction is Huaxing Bank's report for the first quarter of 2024, with a reference unit price per share determined at 3.23 yuan.
The "Guangdong Huaxing Bank Co., Ltd. 2024 Semi-Annual Third Pillar Information Disclosure Report" shows that Huaxing Bank was established in August 2011 with a registered capital of 8 billion yuan, and its registered location is in the Shantou Economic Special Zone. As of the end of the report period, the bank has established 11 first-level branches.
Public information shows that the shares being auctioned above belong to Qinchengda Holding Co., Ltd. (hereinafter referred to as "Qinchengda Company"). Huaxing Bank's first quarter report for 2024 shows that Qinchengda Company holds 800 million shares, accounting for 10.00%. The bank's 2023 annual report shows that Qinchengda Company, founded in 1997, has developed over two decades into a diversified enterprise group with real estate development as the leader, integrating urban renewal, energy technology, financial investment, urban water supply, ecological tourism, cultural education, commercial operation, and property management.
On August 26th, the Intermediate People's Court of Shenzhen City, Guangdong Province, issued a restriction on consumption order, stating that Shenzhen Asset Management Co., Ltd. applied for the execution of a contract dispute with Qinchengda Company. Because it did not fulfill the payment obligations determined by the effective legal documents within the period specified in the execution notice, restrictive consumption measures were taken.
This year, the equity of Huaxing Bank has been auctioned multiple times. For example, on September 16th, Beijing Xin Tong Wanbao Trading Co., Ltd. held 35 million shares of Huaxing Bank's equity for sale, with an assessed value of 100 million yuan and a starting auction price of 56.252 million yuan, which ultimately failed to sell.
The reporter confirmed the relevant situation of this equity auction with the bank, and as of the time of publication, no formal reply has been received.From an industry perspective, as of October 9th, according to journalist statistics, there have been over 4,000 auctions involving bank equity on the Alibaba Judicial Auction website this year. Looking at the recent period, from September 1st to October 1st, there were more than 500 auctions involving bank equity. Among these, the main focus is on small and medium-sized banks (SMBs).
What are the reasons behind the frequent auctions of SMB equity? Lu Minfeng, the chief researcher at the China Local Finance Research Institute, told the journalist that the frequent appearance of SMB equity on auction platforms is due to multiple factors: the pressure of capital adequacy ratios forces some SMBs to raise funds through equity auctions to meet regulatory requirements, as it is more difficult to issue additional shares or introduce new investors; moreover, the rise in non-performing loan ratios brings financial burdens to some SMBs, and they sell equity to obtain cash flow to improve their balance sheets.
"At the same time, management and operational issues have weakened the market competitiveness of some SMBs, and shareholders hope to introduce more effective management teams through equity transfers to improve operational conditions," Lu Minfeng said. "Policy changes are also an important factor; complex financial regulatory policies have led some shareholders, unfamiliar with the policies or concerned about future uncertainties, to choose to sell their equity. Intensified market competition, especially the rise of fintech companies and the expansion of large banks, has led some shareholders to doubt the profitability of SMBs, thus reducing investments to lower risks. In addition, some shareholders, due to liquidity needs, cash out equity to meet other investment or personal funding needs, which also leads to the frequent appearance of equity on auction platforms."
The auction热度 varies unevenly. For example, on September 30th, 42,331 shares of equity in a Fujian rural commercial bank, appraised at 191,300 yuan, were auctioned 96 times and finally sold for 255,000 yuan, a premium transaction. Another example is in February, when 26,763,381 shares of Central China Bank (01216.HK), appraised at 9.0728 million yuan, were auctioned 150 times and finally sold for 10.2582 million yuan, also a premium transaction. However, this year has also seen many instances of SMB equity being sold at low prices without success.
Lu Minfeng told the journalist that in the current market environment, the differentiation of SMB equity transactions is becoming increasingly apparent, and the reasons can be analyzed from multiple aspects. First, the financial condition of a bank is a key factor affecting its equity transaction performance. Banks with strong profitability and a robust balance sheet are often more attractive and can attract more investor attention and trust. Conversely, banks with high non-performing loan ratios or low capital adequacy ratios may be overlooked by investors due to higher financial risks. Second, the economic development level of the bank's location also significantly affects its equity transaction performance. Banks located in economically prosperous areas usually have better business development opportunities and a stable customer base, making them more favored by investors. The economic vitality of these areas not only provides a good business environment for banks but also enhances their market competitiveness. Banks in less economically developed areas face the risks of insufficient economic activity and customer loss, putting them at a disadvantage in the equity transaction market.
"In addition, the bank's management team is also an important factor in determining its market competitiveness," Lu Minfeng said. "An experienced and forward-looking management team can effectively promote the bank's innovative development and enhance its market appeal. These teams, by formulating effective strategies and implementing innovative business models, can stand out in fierce market competition and attract more investor attention. Finally, market reputation has a significant impact on investor confidence. A good reputation not only helps to improve the bank's market performance but also wins more support for it in equity transactions. Conversely, banks facing a trust crisis may be at a disadvantage in equity transactions because investors tend to be cautious about their future development."
A bank official from a northwest region told the journalist: "The differentiation of SMB equity value can be attributed to internal and external factors, with internal factors being the root cause. The core of internal factors is corporate governance: first, strategic management, and second, risk management. To enhance their own equity value, SMBs should start with corporate governance and strengthen the effectiveness of strategic and risk management."
In addition, the journalist found that this year, the equity of several private banks has been auctioned and transferred. For example, recently, 28 million shares and 15.4 million shares of Wuxi Xishang Bank were auctioned off on the Alibaba Judicial Auction website, with a total transaction price of 434.5 million yuan; in September, 6.5% of Shanghai Hua Rui Bank's equity was successfully auctioned, with the bank's second-largest shareholder winning the bid for 136.5 million yuan; in August, Nanchang Jin Kong was approved to take over 30% of the equity held by Zhengbang Group in Jiangxi Yumin Bank, becoming the bank's largest shareholder.
Du Yang, a researcher at the Bank of China (601988.SH) Research Institute, said: "There are several reasons for the frequent transfer of private bank equity in recent years: First, the expected return on investment has declined. At the beginning of the establishment of private banks, shareholders had high investment expectations, but with changes in the market environment, the development of some private banks has not met expectations, leading to a decline in shareholders' expectations for investment returns. In this situation, some shareholders choose to transfer equity to reduce investment risks. Second, regulatory policies have become stricter. In recent years, to ensure the stable operation of the financial system, regulatory authorities have strengthened the supervision of bank business and put forward higher requirements for the business models and business scope of private banks. Some shareholders may be forced to transfer equity because they do not meet regulatory requirements. Third, market environment changes adjust. With the continuous development of China's financial market, changes in the market environment have had a certain impact on the operation of private banks. Some shareholders may need to reallocate resources due to adjustments in their own development strategies, leading to the transfer of private bank equity."How can small and medium-sized banks enhance the attractiveness of their equity? A bank official from the northwest region told reporters that by observing the banks recognized as value bank models in the market, it is not difficult to find that they excel in corporate governance, strategic management, risk management, and other aspects. Small and medium-sized banks need to start from corporate governance to enhance the dual protection of strategic management and risk management to improve their own equity value. This is not only the key to enhancing the bank's market competitiveness but also the necessary path to safeguarding shareholder interests and achieving sustainable development of the bank.
Lu Minfeng suggested that in the current highly competitive financial market, small and medium-sized banks urgently need to enhance the value of their equity, which can be achieved through a variety of effective measures. "Firstly, optimizing the asset-liability structure is the foundation for improving financial health. Reducing the non-performing loan ratio not only enhances profitability but also strengthens shareholder trust. For example, by strictly reviewing credit, the non-performing loan ratio can be controlled at a low level, significantly improving its financial performance. Secondly, optimizing the management team is equally important. Introducing management talents with rich industry experience and strategic vision can enhance the bank's flexibility and innovation capabilities. For example, a city commercial bank successfully expanded multiple new businesses and achieved growth above the market average in a short period by hiring top managers."
"Thirdly, risk management is another key. By establishing a risk control mechanism to timely identify and respond to potential risks, the bank can maintain stable operations and strengthen investor confidence. For example, a rural commercial bank significantly reduced operational risk costs by deploying an advanced risk management system and regular assessments. In terms of customer service and brand building, small and medium-sized banks can build a diversified financial service network by innovating products and optimizing experiences to attract and retain customers. For example, a rural commercial bank enhanced its attractiveness in market competition by offering differentiated products and digital services. Finally, expanding into new business areas such as fintech and green finance is an important means of increasing revenue growth points. By comprehensively applying the above measures, small and medium-sized banks can not only enhance their competitiveness and equity value but also lay a solid foundation for sustainable development." Lu Minfeng said.