The Bank of Communications (BoCom) has become China's second bank to launch a fund management firm, amid a buying spree from international investors for its initial public offering in Hong Kong.

The bank on Monday announced the China Banking Regulatory Commission has accepted its application to establish a joint venture fund management company with Schroder Investment Management Ltd and the China International Marine Containers (Group) Ltd.

The three parties will respectively hold 65 percent, 30 percent and 5 percent of the new joint venture, which will be situated in Shanghai with a registered capital of 200 million yuan (US$24.15 million), according to the BoCom announcement.

BoCom became the second bank after the Industrial and Commercial Bank of China (ICBC) to establish a fund management company in China.

In April BoCom, China's fifth-largest commercial bank, was picked alongside ICBC and the China Construction Bank by the banking authorities as a pilot. Previously domestic banks were not allowed to conduct other businesses.

ICBC announced in late April it had approval to proceed with its plan to set up a joint venture fund management company with Credit Suisse First Boston and the China Ocean Shipping (Group) Co.

BoCom's announcement came amid a fevered response to its Hong Kong IPO.

BoCom began the retail tranche of its 5.86-billion-share listing on the same day and witnessed investors queuing outside popular pick-up spots in Hong Kong.

"The stock is likely to be priced at the higher-end," She Minhua, a banking analyst at China Securities Co, told China Daily yesterday.

The bank, now offering its shares at HK$1.95-2.55 each, will decide the listing price on Saturday. The debut is scheduled for the following Thursday.

"The price will surge 10-20 percent on the first trading day," She said.

Analysts have fanned the flames of interest in the IPO as there is a mere 5 percent of the shares available to retail investors.

The bulk will go to institutional investors, with the Ministry of Finance holding 22.18 percent, the National Social Security Fund 12.36 percent and Central Huijin Investment Co Ltd 6.67 percent.

HSBC, BoCom's strategic foreign partner, will purchase shares with an estimated total payment of HK$2.27-3.42 billion (US$291-438 million) to keep its 19.9 percent stake in the bank.

If the government restriction is removed, HSBC may increase its stake in BoCom to 40 percent during the four years beginning August 18, 2008, the IPO document revealed. Currently, the authorities have capped a foreign investor's stake in a Chinese bank at 20 percent.

"The Chinese Government's high expectation and strong support of the country's first bank IPO overseas also boosts up investors' confidence," said She.

Minsheng Banking Corp and China Construction Bank will follow hot on the heels of BoCom. Minsheng is waiting for a final decision from the Hong Kong Stock Exchange.

With the launching of the fund management firm, BoCom steps into virgin business territory. It is a significant phase in the bank's expansion into the asset management business.

However, the new business is unlikely to help boost BoCom's profits, at least in the next two or three years, analysts believe.

(China Daily June 15, 2005)