Shengjing Bank (2066 HK): Another Rural Commercial Bank Delisting

• In Chinese RCBs: Two Bailouts. How Many More At Risk?, I concluded Shengjing Bank (2066 HK) was one bank I would avoid. It's now suspended pursuant to the Takeovers code.

• Shengjing Bank had one of the largest P/B and net income declines in recent years. It had borderline allowance/provision coverage. It also had the lowest net interest margin.

• Shengjing Bank is PRC-incorporated, therefore any delisting proposal would involve a Merger by Absorption, incorporating a Scheme-like vote. And probably a tendering condition.

Shengjing Bank is super illiquid - look away now if this is not your thing.

Shengjing Bank is also suspended, so there is nothing to be done right now.

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Some Background

• Shengjing Bank was listed on the HKEx on the 29th December 2014 at HK$7.56/H-share.

  • Here is the prospectus.

• Shengjing Bank is a rural commercial bank in China, primarily serving the local economy, focusing on local businesses, small and medium enterprises, and urban/rural clientele.

  • Loan exposure: high real estate exposure due to Liaoning’s urban centers. Agricultural lending is present but secondary.

  • Geographical exposure: Liaoning province (northeastern China).

    • Northeastern China (Liaoning, Jilin, Heilongjiang) have been noted (in the past from S&P) for economic stagnation, and higher NPLs.

• Who owns what? Shengjing Bank is primarily owned by state-owned entities and institutional investors via the A shares.

• By the numbers. FY24 net profit declined 15.3% yoy to RMB621mn.

  • A reasonable allowance/provision coverage ratio range for RCBs is 150%-200%. Shengjing Bank's was borderline.

  • As pointed out in Chinese RCBs: Two Bailouts. How Many More At Risk?, had the lowest net interest margin of a basket of RCBs, and the largest net income decline in FY24.