* Chongqing Rural prices HK IPO at HK$5.25 per share -sources
* Pricing reflects price-to-book ratio of 1.8 times -source
* More than 10 mid-sized banks could list next year -source
* Valuation lower than city lenders such as Pudong Development (Adds listing date, background)
By Kelvin Soh and Denny Thomas
HONG KONG, Dec 9 (Reuters) - Chongqing Rural Commercial Bank raised $1.35 billion after pricing its Hong Kong initial public offering in the middle of an indicative range, sources said, a move that could spark a new wave of IPOs by mid-sized Chinese banks.
As the first regional Chinese rural lender to go public, the IPO could herald a wave of listings by China's numerous medium-sized financial groups such as Bank of Beijing and Bank of Shanghai, if market conditions allow.
"The next trend is for regional rural banks to tap the capital markets," said David Lai, a fund manager at CITIC Securities who manages about HK$200 million ($25.8 million).
"From an investment perspective, these guys have better loan growth and they can tap on the more rural areas, so investors will likely look at that."
Hong Kong has been the world's biggest IPO market this year, having raised about $49 billion in 2010 and accounting for about a fifth of the global total.
Chongqing Rural priced its offering to sell about 2 billion shares at HK$5.25 per share, the middle of the range of HK$4.50 to HK$6 each, two sources said, declining to be named because the information was not yet public.
After the exercise of a greenshoe option, Chongqing Rural's pricing reflects a price-to-book ratio of 1.8, one of the sources said. That is lower than regional city banks such as Shanghai-traded Pudong Development and Shenzhen-traded Shenzhen Development , which have a price-to-book ratio of 2.7 and 2.8, respectively.
By comparison, national state-owned lenders such as ICBC and China Construction Bank are trading at about 2.6 times price-to-book in Hong Kong.
The stock will begin trading on Dec. 16 and has attracted investors such as the life insurance unit of Taiwan's Fubon Financial and Abu Dhabi-backed Nexus Capital Investing, according to the IPO prospectus. "If this stock does well, it will really open the door for other city and rural banks," said Mike Werner, an analyst with research firm Sanford Bernstein. "But if it does poorly, that might temporarily shut the door for similar listings."
The joint global coordinators and joint bookrunners are Morgan Stanley and Nomura Holdings Inc .
RURAL CO-OPS
Many regional rural lenders trace their lineages back to co-operatives set up during the early days of Communist rule in China, taking up projects that state-owned lenders such as ICBC declined.
"I was expecting investors might give a little bit of a premium because it is exposed to Chongqing," Werner of Sanford Bernstein said, referring to the southwestern Chinese city where the bank is based. "In theory, Chongqing should benefit from investment related to China's next five-year plan."
However, Chongqing Rural's greater exposure to the property-related sector could be a risk factor for investors. About 28 percent of Chongqing Rural's corporate loan book was exposed to property and related sectors, compared with an average of 10-15 percent for China's top banks, according to Werner.
Agricultural Bank of China Ltd was the first rural bank to go public when it raised $22 billion in the world's biggest IPO in August this year, but much of AgBank's operations are in major cities with only 11 percent of loans going to rural households. In contrast, about half of Chongqing Rural's loans are made to rural areas, which it calls "county area business". "This is significant because it's the first Chinese regional bank to go public," one of the sources said referring to Chongqing's pricing. "We could see more than 10 banks apply to do similar offerings if this goes well."
Other regional lenders in China include Bank of Beijing, Bank of Shanghai and rural banks such as Hunan Rural Credit Union.
Like its bigger, national rivals, an extraordinary one-off clean-up of its books helped prepare Chongqing Rural for the offering, analysts said.
The bank also cleaned up its non-performing loan portfolio from more than 10 percent in 2007 to below 3 percent in June this year. ($1 = 7.766 Hong Kong Dollars) (Editing by Dhara Ranasinghe and Muralikumar Anantharaman)