China watchdog OKs giant Agricultural Bank IPO

The China Securities Regulatory Commission reviewed the plan Wednesday and announced in a brief notice on its website that it had been approved.

Beijing-based Agricultural Bank, which serves mainly rural customers, is the last of the country’s “big four” state-owned banks to seek a share listing. It plans to sell a total of up to 53 billion shares in separate listings on the two exchanges, with trading expected to begin by mid-July, state-run newspapers reported Wednesday.

The bank had denied reports the offering might be delayed due to recent market turmoil, which has dragged share prices to 13-month lows.

Expectations of strong government backing for the IPO, and other possible market-boosting measures, prompted a rebound in shares Wednesday, with the benchmark Shanghai Composite Index gaining 69.92 points, or 2.8 percent, to close at 2,583.87.

Agricultural Bank, which is issuing shares worth 15 percent of its equity, chose Goldman Sachs Group Inc., JP Morgan Chase & Co., Macquarie Group Ltd., China International Capital Corp., and Deutsche Bank AG. to run its IPO in Hong Kong. CICC and three other Chinese brokerages were chosen to advise on its share sales in China.

The bank has yet to set an IPO price for its shares, which are expected to raise between $23 billion and $30 billion. That would exceed the world record previously set by Industrial & Commercial Bank of China, whose $21.9 billion dual Hong Kong-Shanghai IPO in October 2006 helped make it the world’s biggest bank by market value.

Bank of China and the China Construction Bank also held multibillion dollar IPOs as part of their transformation into fully commercial banks.

Though the Agricultural Bank is gargantuan, with more than 24,000 branches and more than 350 million customers, it is considered relatively weak given its focus on rural lending. In a report late last year, Fitch Ratings give the lender an “E”, its second lowest rating.

However, analysts note that the bank’s margins on its loans and deposits are relatively wide given its near-monopoly in the countryside, where borrowers have little bargaining leverage.

Unlike its peers, the bank has not taken on any foreign strategic investors, though it has received 15 billion yuan ($2.2 billion) from the country’s Social Security Fund as part of its restructuring.

China’s share markets often suffer from fears that massive inflows of new shares might overwhelm demand, dragging prices lower.

Given the recent malaise in markets, other major companies have pulled back on fundraising plans of their own, perhaps giving the Agricultural Bank greater leeway for its own share offering.

source : www.washingtonpost.com

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