China's fifth-largest bank, one-fifth owned by British lender HSBC, will proceed with the Hong Kong portion of the IPO, next month at the earliest, offering 12 percent to 15 percent of its enlarged share capital to investors.

But Shanghai's worsening stock market and a strong pipeline of competing A-share IPOs have soured the mood of the bank and its financial advisers for a mainland share. ``The Shanghai IPO is not going to happen for the time being - it won't be a concurrent deal,'' said one source with direct knowledge of the deal.

``The A-share market is not strong enough to do the deal,'' said another well-informed source. ``There was a small hope factor but the [Shanghai] market is not going anywhere.''

A Bank of Communications spokesman declined to comment. Officials at HSBC and Goldman Sachs, the two banks underwriting the bank's Hong Kong stock sale, also declined to comment.

The bank's efforts to sell shares simultaneously in Hong Kong and Shanghai have been in doubt for months.

In February, The Standard reported that it was likely to scrap its Shanghai IPO due to weak mainland markets. Bankers questioned at the time whether mainland investors had the appetite for a US$1 billion local listing.

Since then, mainland markets have sunk even further. While neither the bank nor its ultimate boss, the Ministry of Finance, has officially pulled the plug, it would probably take a stunning rally in Shanghai shares for the sale to go ahead.

``Investors [in China] have been burned so many years in a row now, so they don't want to invest in IPOs,'' said Joe Zhang, co-head of China research at UBS and a former Chinese central bank official. ``You can see here that even if it's a shiny stock they still have a problem selling it.''

A strong pipeline of A-share listings has further dampened investor sentiment, with coal giant China Shenhua, slated to complete the first dual mainland-overseas IPO next month, at the head of the queue.

``Mainland investors were asked what new stock they would choose to invest in, and the answer was not Bank of Communications,'' said one China-based fund manager. ``Maybe they can get it reignited later this year - we'll see, anything is possible.''

In another blow for the mainland lender, the Bank of Communications said Thursday its 2004 earnings were slashed 63 percent to 1.6 billion yuan (HK$1.5 billion), after Beijing canceled a 9.67 billion yuan tax credit. The bank claimed the tax benefit following a state-sanctioned sale of 41.4 billion yuan in nonperforming loans last year to a mainland asset management firm. The tax rule interpretation by Beijing - which allows lenders to claim tax benefits on uncollectible loans - has potentially serious implications for the country's big four lenders. Construction Bank and Bank of China both benefited from large-scale loan clearouts last year. elliot.wilson@singtaonewscorp.com