The world's biggest bank IPO will be a winner

China's economic malaise has led to a rise in non-performing loans (Beijing estimates 1.5 per cent NPL, Wall Street estimates 12-15 per cent NPL) in the Chinese banking system and a slowdown in financial sector profits. Despite this, I am convinced the $7 billion IPO of the Postal Savings Bank of China (PSBC) in Hong Kong will be a winner. Why?
PSBC is a state owned megabank with 500 million clients and 50,000 branches. This bank's only comparables are ICBC, Bank of China, CCB and the Agricultural Bank of China. This fact alone means Beijing will ensure the deal is a success. Two, the deal is largely presold to strategic shareholders at $0.61. These shareholders include Alipay, Tencent, J.P. Morgan and China's top state owned companies. Cornerstone investors own 60 per cent of the PSBC IPO. Three, the euphoria that once made China's Big Four banks the largest financial institutions on the planet is long gone. Chinese state banks now trade below book value. This does not mean the IPO will be a failure. Note China shipbuilding alone bought $2 billion of shares. Five, the bank has priced the IPO offer price at 4.76 Hong Kong dollars. I expect at least a 10 per cent rise when the bank breaks syndicate and is listed on the stock exchange next week. This is the best money making opportunity in Chinese IPO since Jack Ma led Alibaba in New York all those years ago.
The ICICI Prudential IPO is India's biggest new issue deal since Coal India in 2010 and has reportedly drawn $9 billion in bids. This makes it a waste of time to bid without a guaranteed allocation. This is a historic deal since ICICI Prudential is India's largest private sector insurer and this is the first mature insurance deal on Dalal Street, after the Lok Sabha raised the permissible foreign stake from 26 per cent to 49 per cent. This is the reason the grey market price in Mumbai, is 350 rupees, above the 330-334 range. While the deal will be a large success upside for UAE investors is only 10 per cent near a market top.
The Telxius IPO is interesting since its parent Telefonica will still generate 85 per cent of its tower business while its growth potential will come from strategic alliance with other telecom service providers. Telefonica also generates 56 per cent of Telxius's cable business but the client roster is now as high as 200 operators. If Telefonica prices the shares at 12 euro, Telxius will be valued post listing at ?3 billion, making it a compelling investment at 10 times earnings. Telxius will be the same size as its peers Cellnex and Inwit (Telecom Italia). The motivation for Telefonica to list its tower/cable businesses is to cut its colossal debt load and avert a credit rating downgrade. Telxius will own 16,000 towers and undersea cable connections in Spain, Germany, US and Latin America.
The tower business, pioneered by Crown Castle a decade ago, offers predictable revenues and high, reliable dividends. Telxius's Achilles heel is the highly volatile undersea cable business, 60 per cent of revenue and EBITDA since profit margins are lower and capex commitments higher than towers, with its stellar, recurrent and predictable dividends. The real winner IPO last week was The Trade Desk (TTD) in New York, a 95 per cent first day rise on its $15 IPO offer price. RBC and Citigroup priced this fabulously profitable ad tech firm IPO. How many UAE investors got an allocation in Trade Desk? Zero! An alternative strategy would be to accumulate the shares of rival adtech firm Criteo (CRTO). A put sale strategy could enable investors to accumulate shares in this critical, high growth online advertising infrastructure firm at 30 for a 42-45 target. Ad Tech could well be a $25 billion revenue market and this puppy is a market leader.
Twitter shares spiked 21 per cent higher on Friday after CNBC reported that Salesforce and Google could launch a takeover bidding war for the embattled social media icon. I see no reason for Salesforce to buy twitter as it does not need to own it to use it as a customer service platform. Hence CRM's five per cent sell-off is a gift!