A worker cleans an Agricultural Bank of China sign in Shanghai on Tuesday. Agricultural Bank of China's initial public offering was delayed on the regulator's concern about its weak asset quality and high ratio of non-performing loans. [Bloomberg News]
Agricultural Bank of China Ltd, the nation's third-largest lender by assets, hired nine banks to arrange first-time share sales in the Chinese mainland and Hong Kong in what may be the world's largest initial public offering.
The company picked China International Capital Corp (CICC), Deutsche Bank AG, Goldman Sachs Group Inc, JPMorgan Chase & Co, Macquarie Group Ltd and Morgan Stanley to arrange the Hong Kong portion, according to a statement on its website. CICC, Citic Securities Co, China Galaxy Securities Co and Guotai Junan Securities Co will manage the bank's yuan-denominated A-share offering. Agricultural Bank's own investment-banking unit will also help with the Hong Kong sale.
Agricultural Bank may raise as much as 200 billion yuan ($29.3 billion) through the share sales, Securities Times cited Li Fuan, head of the banking innovation department at China's bank regulator, as saying in December. A combined sale in Hong Kong and the Chinese mainland of that size would make it the world's biggest offering, topping the $22 billion raised by Industrial & Commercial Bank of China Ltd in 2006.
"It really could be just the tip of the iceberg as far as what other potential growth initiatives are going to be done in the Chinese market," said David Menlow, president of Millburn, New Jersey-based IPOfinancial.com. "Getting into this market has always been a primary directive for any of the investment banks here."
State-Led Restructuring
Agricultural Bank is the last of the nation's four biggest lenders to go through a state-led restructuring. The bank received a $19 billion cash injection from the government and removed 800 billion yuan of non-performing loans from its balance sheet in 2008. The IPO will allow the lender to improve corporate governance and join rivals in tapping capital markets to aid expansion.
The bank will only bring in China's National Social Security Fund as a so-called strategic investor ahead of the IPO, Caing.com reported yesterday. The bank became a shareholding company in January 2009, completing a decade-long reorganization of the nation's state-owned banks.
Agricultural Bank sent out requests for proposals to 21 banks on April 2 to compete for a role to manage a share offering in Hong Kong, four people with knowledge of the plans said earlier this month.
ICBC, Bank of China Ltd and Bank of Communications Ltd have announced plans to raise a combined 107 billion yuan this year after a credit boom drained capital, according to data compiled by Bloomberg. China Construction Bank Corp plans to raise about 75 billion yuan of capital through share sales this year, two people with direct knowledge of the matter said earlier this month.
Capital Needs
Bank of China this week hired five banks including BOC International Holdings Ltd, Credit Suisse Group AG and Merrill Lynch & Co to manage a share sale in Hong Kong. The Chinese lender last month won shareholders approval to sell as much as 20 percent of its outstanding shares in Hong Kong or Shanghai, or both, to boost its capital.
China's four biggest publicly traded banks need at least 480 billion yuan of capital to fund loan growth and comply with regulatory requirements for financial strength over the next five years, ICBC President Yang Kaisheng wrote in an article published in the 21st Century Business Herald on April 13.
Agricultural Bank was the first commercial bank established in the Chinese mainland in 1951 and the first specialized bank set up after the reform and opening-up of the country in February 1979, according to its English-language Web site. It operates more than 24,000 branches nationwide and serves more than 350 million customers.
The bank raised 50 billion yuan last year in the nation's biggest corporate bond sale to boost capital.
