CHINA: Agricultural Bank of China's multi-billion dollar IPO closes with modest gains in its Hong Kong debut

Record ID: 560341

  • Title: CHINA: Agricultural Bank of China's multi-billion dollar IPO closes with modest gains in its Hong Kong debut
  • Date: 17th July 2010
  • Summary: BEIJING, CHINA (FILE) (REUTERS) AGBANK HEADQUARTERS VARIOUS OF AGBANK EXTERIORS ENTRANCE TO AGBANK BRANCH
  • Embargoed: 1st August 2010 13:00
  • Keywords:
  • Location: China
  • Country: China
  • Topics: Economic News
  • Reuters ID: LVAD1QX6DW050P0QGCZMJG5JOB14
  • Story Text: Agricultural Bank of China's $19.3 billion Initial Public Offer (IPO) crossed the finish line on Friday (July 16) after a hectic three-month sprint, notching up modest gains in its Hong Kong debut amid concerns about valuations and a glut of bank share sales.
    Shares in AgBank, seeking to bolster its capital ratio following an industry-wide lending binge last year, rose about 3 percent in early trade. Its Shanghai-listed shares rose less than 1 percent on their first day's trade on Thursday.
    Hong Kong's top legislators, including CEO Donald Tsang, were on hand to watch, along with CICC investment banking head honcho Levin Zhu, Deutsche Bank CEO Josef Ackermann and other top executives at the companies involved.
    Also present were the top investment bankers involved in the three-month process of selling the offering to mutual funds and arranging the cornerstone investors which accounted for $5.45 billion of the Hong Kong IPO.
    At the champagne reception, top executives at the Beijing-based bank gave a crystal model of the company's headquarters to the Hong Kong Stock Exchange.
    AgBank's Chairman Xiang Junbo, a war hero and award winning script writer, seemed relaxed but only took three questions from the reporters at the listing ceremony, which disappointed the local media gathered there.
    "You should know better about the international capital market than I do. I am very satisfied that we had such an over-subscription even in such a difficult climate," Junbo told reporters.
    While the first day performance matched expectations, compared to China's other large banks that previously listed, AgBank's debut is a disappointment.
    Industrial & Commercial Bank of China and Bank of China both soared 15 percent on their Hong Kong openings after listing in 2006. Founded in 1951 by Mao Zedong as the rural unit of the central bank, AgBank is the last China's "Big Four" state-owned lenders to list its shares.
    "When they listed, that was four to five years ahead of us. We just listed today. If we are able to reach 150 percent of coverage ratio by end of this year, I will be very happy. Thank you," he said.
    Kwong's view on the lack of upside was shared by several analysts and traders, aware that AgBank, historically the weakest of China's top four banks, is going public during a sliding stock market.
    Still, the lender pushed ahead in a down market, published figures that forecast a profit and a pared down bad loan book.
    "Well I think it does raise a rather interesting question. There are a couple of things that I think are going to factor. Obviously with IPO demand its mostly about sentiment in the market and the direction in the market. But what we're seeing now is IPO performance in China, the benchmark is now set by ABC. So flat is the new up, and up is the new 'I've been taking too many risks'," said Ben Collett, head of equities of Louis Capital in Hong Kong.
    Hong Kong's Hang Seng is down about 8 percent in the three months since the AgBank IPO kicked off, while the Shanghai Composite has shed almost a quarter.
    AgBank's IPO could still rise to a world record $22.1 billion if additional shares set aside in an over-allotment option are sold in the coming weeks.
    Should the stock come under pressure in Shanghai and Hong Kong, underwriters are expected to purchase shares to help stabilise the price.
    Its soft debut bodes ill for upcoming fundraising by peers including ICBC and BoC who are returning to capital markets to raise tens of billions of dollars to supplement their capital.
    The timid start to AgBank's life as a public company is attributed to several factors.
    One is that AgBank's IPO price was set at a slight premium to Bank of China in terms of price to book value. That may allow AgBank to raise the most money ever through the IPO, but some fund managers viewed the stock as expensive, given that the bank was historically the weakest of China's top four lenders.
    With almost 24,000 branches and some 441,000 employees, AgBank has almost double the staff and twice as many outlets as BoC, but a similar asset base.
    The offering price represents 1.65 times AgBank's forward book value, just above BoC, but below that of ICBC and China Construction Bank.
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