Shares in China Construction Bank (CCB) closed 32 percent higher on their Shanghai debut on Tuesday, beating other big Chinese lenders' first-day gains and boosting hopes for future large Shanghai share offers.

Beijing has quickened its pace of approving new IPOs in a bid to cool a fast-rising stock market that has hit repeated record highs this month.

After CCB's $7.7 billion initial public offer, China Shenhua Energy will soon follow with yet another fund-raising record of nearly $9 billion.

CCB's Shanghai debut prices are weaker than many analysts had expected, but are already strong enough to give a boost for the forthcoming major IPOs, said Zheng Weigang, senior stock analyst at Shanghai Securities.

The large cap's relatively low price on Tuesday will actually leave decent potential for it to rise further in coming weeks, helping stabilise the overall market, he said.

China's key stock index has doubled this year, and analysts said some institutions may have intentionally priced CCB's shares low on the secondary market for later buying to window-dress the market.

TOPS OTHER DEBUTS

CCB's local-currency A shares opened at 8.55 yuan, a third higher than its IPO price of 6.45 yuan. The stock quickly jumped to 9.05 yuan, but closed up 32 percent at 8.53 yuan.

A Reuters poll of six analysts had forecast CCB's shares would rise to 9-10 yuan on their first day, citing expectations of higher earnings growth than at other major state-owned banks.

CCB's closing price valued the bank at 1,993 billion yuan ($265 billion), making it the world's second-largest after Industrial and Commercial Bank of China.

It also gave Bank of America a book profit of $18.7 billion on its 8.19 percent stake in CCB, or 19.13 billion shares, which it bought for $3 billion in 2005.

CCB, China's second-largest bank by assets, raised a record 58 billion yuan last week in an IPO of 9 billion shares, just 3.85 percent of the company. It attracted a record 2.26 trillion yuan of subscriptions, for an oversubscription ratio of 38 times.

Its debut compares favourably with Industrial and Commercial Bank of China (ICBC), which saw an oversubscription ratio of 16 times in the Shanghai portion of its IPO last October. Its A shares ended their first day of trade up only 5 percent.

The domestic offer in June 2006 of Bank of China, the country's biggest foreign exchange lender, was 32 times oversubscribed and the bank's A shares rose 23 percent on their first day.

DIVERSIFIED LENDER

At the close, CCB's A-share price represented a 24 percent premium to its Hong Kong-listed H shares, which closed at HK$7.10. This beat ICBC's 22 percent premium, but was much lower than Bank of China's hefty 51 percent.

CCB's weaker-than-expected opening was mainly caused by a fund shortfall in the money market due to a slew of large IPOs this month, said Wu Yonggang, senior banking industry analyst at Guotai Junan Securities.

But we stick to our forecast that CCB should be worth around 9.5 yuan because of its outstanding individual banking business and slightly better assets than other major state-owned banks.

Analysts said Construction Bank was arguably more diversified than its big rivals. A lack of diversification has long been a weak point in China's state-dominated banking sector.

It is China's largest provider of personal loans and the largest bank provider of mortgages to individuals.

Its fee and commission income doubled in the first half of this year, making it one of only a handful of Chinese banks with non-interest income exceeding 10 percent of total revenue.

But CCB's chairman said on Tuesday the lender will control its loan growth to be in line with monetary tightening by the Chinese government.

Still, analysts forecast CCB's net earnings would rise about 30 percent per year on average over the next five years, as its focus on personal loans helps it ride out government efforts to curb bank lending to the corporate sector.

CCB's share price valued it at 29 times forecast 2007 earnings of 0.29 yuan per share -- about the same as ICBC's 30 times and Bank of China's 28, but cheaper than an average 43 times for about a dozen Chinese banks listed in Shanghai and Shenzhen, according to Reuters Estimates. ($1=7.51 Yuan)

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