economics

April 30, 2010

China moves toward huge IPO * APRIL 8, 2010

Filed under: Uncategorized — ktetaichinh @ 4:01 am
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By NISHA GOPALAN

HONG KONG—Agricultural Bank of China Ltd. asked 21 investment banks to submit proposals to shepherd a planned initial public offering that could raise more than $20 billion, according to people familiar with the deal, in a step forward for what is expected to be one of the world’s largest IPOs.

The move offers the first indication that Beijing is willing to move ahead with an IPO after the state-controlled bank restructured itself in 2008, a move broadly seen at the time as the first step toward listing shares. The people familiar with the matter said they haven’t been told when Agricultural Bank will list, but listings in both Shanghai and Hong Kong are likely this year.

Agricultural Bank officials didn’t return calls for comment.

Industrial & Commercial Bank of China Ltd., China’s largest bank by assets, raised $21.9 billion in 2006 in the world’s biggest IPO, while Visa Inc.’s $19.7 billion IPO in 2008 was the second largest, according to data from Dealogic. Investors have been awaiting Agricultural Bank’s IPO since ICBC’s float, which came after the IPOs of China’s two other Big Four lenders, Bank of China Ltd. and China Construction Bank Corp.

An offering this year could test market sentiment in both mainland China and Hong Kong. China’s benchmark Shanghai Composite Index has fallen 3.9% this year after a heady rise last year, amid concerns that China will pull back on stimulus efforts and following a flood of other IPOs. Hong Kong’s Hang Seng Index is up 0.3% this year and lost what was expected to have been a major IPO when American International Group Inc. reached a deal to sell its American International Assurance Ltd. arm to Prudential PLC rather than take it public there.

The global financial crisis pushed Agricultural Bank’s IPO plans onto the back burner, but more recently China’s drive to ensure that rural areas have proper access to finance seemed to further threaten Agricultural Bank’s plans to list shares as it tried to shore up its roots as a rural lender.

While its date has been uncertain, the bank’s IPO has been expected by global and Asian investment banks hoping it could result in fat fees. Asia-based IPOs are important to their business; the Asian-Pacific region outside Japan posted $22.5 billion in IPO volumes in the first quarter of this year, accounting for 43% of the global IPO total, according to Dealogic.

Banks pitched Wednesday to play an advisory role in the Hong Kong, or H-share, portion of the long-awaited deal by Agricultural Bank, these people said. On Thursday, they will vie for the Shanghai, or A-share, portion. It was unclear whether the A- and H-share IPOs will be simultaneous or one after the other, the people said.

The bank is China’s third-largest lender by assets after ICBC and China Construction Bank, and is the country’s largest rural lender. Agricultural Bank has been grappling with turning around a business directed by the government to lend to farmers and agriculture-related businesses, often in poor areas. It has in recent years been expanding its lending in urban areas, a more profitable business for the bank.

However, its earnings have trailed those of its rivals. For the January-September period of 2009, Agricultural Bank reported net profit of 50 billion yuan ($7.33 billion) on assets of 8.6 trillion yuan, while Bank of China posted net profit of 62 billion yuan on assets of 8.3 trillion yuan.

China’s government set up Agricultural Bank in the 1950s. Beijing started restructuring the bank into a modern financial institution three years ago. In November 2008, China’s sovereign-wealth fund injected $19 billion into the bank to shore up its capital as part of a restructuring ahead of a possible IPO. The Ministry of Finance and the sovereign-wealth fund now share ownership of the lender.

—Dinny McMahon in Beijing contributed to this article.

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