AgBank on track to set world IPO record; Kuwait key investor Bank to set price on July 7, Shanghai listing on July 15

SHANGHAI, June 28, (Agencies): Agricultural Bank of China (AgBank) is expected to set a price range on Monday for its Shanghai listing similar to the one determined for the bank’s Hong Kong offering, thus giving a clearer indication of the size of the IPO, which could be the world’s biggest. But coordinated pricing for AgBank’s Shanghai-Hong Kong IPO masks divergent appetites for China’s third-biggest lender by assets, and could lead to different post-debut performance, analysts said. “Global investors are longer-term in nature, thus preferring companies like AgBank that serve as a proxy of China’s economic growth,” said Yu Wei, analyst at Guoyuan Securities Co. “Chinese investors are more speculative, and dislike companies with too much certainty.” With more than more than 350 million customers, the population of the United States, AgBank is the last of China’s Big Four banks to go public. The bank, headed by 53-year-old war hero Xiang Junbo, is looking to replenish its capital and drive growth. AgBank said last week it would sell 25.4 billion Hong Kong-listed H shares at HK$2.88-HK$3.48 apiece, potentially raising as much as $11.4 billion.

The range represents a price-to-book value of 1.55 to 1.79 times for China’s third-largest bank with assets of $1.4 trillion. A similar range in Shanghai would value the mainland portion of the offering, or 22.2 billion A shares, up to about $9.98 billion, bringing the combined size of the IPO to $21.38 billion if priced at the top of the range. That would leave AgBank’s IPO slightly smaller than Industrial and Commercial Bank’s record $21.9 billion offering in 2006, unless a greenshoe option is exercised to increase AgBank’s IPO size by 15 percent. AgBank will set its IPO price on July 7 and start trading in Shanghai on July 15, and in Hong Kong a day later.

Liu Jun, analyst at Changjiang Securities Co in Wuhan, said a unified pricing for the Shanghai and Hong Kong legs of AgBank’s IPO would not reflect the different investment culture in these two markets.
“In a more mature market like Hong Kong, there are more long-term investors who look at dividend ratios, and Chinese banking shares are already cheap and safe for them to buy.” “But most Chinese investors buy stocks for quick gains, so AgBank won’t arouse much interest,” Liu said, adding that some institutions who buy AgBank’s IPO shares under political pressure may sell them quickly after listing.

The difference in investor tastes is seen in the fact that most dual-listed Chinese banks currently trade at a premium in Hong Kong over their Shanghai-listed peers. But investor interest in AgBank’s Shanghai IPO is reportedly high, with the official Securities Times reporting on June 25 that the Shanghai offering was 16 times oversubscribed upon the completion of domestic pre-marketing. The Hong Kong leg of AgBank’s IPO has already been over-subscribed by institutional investors at low to mid-range prices, sources involved in the deal told Reuters last week.

Eleven cornerstone investors, including sovereign wealth funds in Qatar and Kuwait and United Overseas Bank, have agreed to buy $5.45 billion worth of AgBank shares, or nearly half of the Hong Kong offering, sources said. Some analysts consider the rural lender to be the weakest of China’s big banks owing mainly to its bad-loan burden. But price-to-book value estimates based on a share price range for the Hong Kong portion of the sale make AgBank a cheaper buy than China Construction Bank and ICBC, and on a par with Bank of China, Dow Jones Newswires reported.

Investor optimism that markets may have bottomed out could also help the sale, said Aaron Boesky, chief executive of China-focused hedge fund Marco Polo Investments. “Retail interest should surprise on the upside, based on cheap pricing and current perceptions regarding a bottom in the market,” he told Dow Jones. The size of the cornerstone investors’ commitment — about $5.45 billion — combined with heavy interest from retail investors could make it tough for some institutional buyers to get their hands on a worthwhile chunk of the offering, Boesky added. “There will be little room for the mid- and small-size managers, which is shocking considering the size of the listing,” he was quoted as saying.

The sale’s other cornerstone investors reportedly include: Dutch financial-services firm Rabobank, Singapore state investment company Temasek Holdings, Australia’s Seven Group Holdings, the Kuwait Investment Authority, US food giant Archer Daniels Midland, United Overseas Bank, tourism monopoly China Travel Services Group and state-run consumer group China Resources (Holdings). The monster share sale comes after Hong Kong’s bourse, faced with growing competition from Shanghai in recent years, claimed top spot as the world’s largest IPO market last year, raising almost 32 billion US dollars. But market volatility has also seen several companies shelve their Hong Kong IPOs in the past two months. Swire Properties, a major real estate developer in the territory, pulled a planned $3.09-billion share sale last month, just two days after Giti Tire, China’s largest tyre maker, shelved a $500-million IPO.

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