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China approves mega IPO of Agricultural Bank [AsiaOne]

China approves mega IPO of Agricultural Bank
AFP
Source – AsiaOne, published June 09, 2010

SHANGHAI, CHINA – China’s Agricultural Bank on Wednesday received the long awaited green light from securities regulators to launch what could become the world’s biggest initial public offering.

The bank, the last of China’s “big four” state lenders to float shares, is seeking to sell 22.235 billion yuan-denominated A shares, or seven percent of its enlarged share capital, in Shanghai, according to a preliminary prospectus released on Friday.

It also plans to issue 25.412 billion H shares, or eight percent of its enlarged share capital, in Hong Kong.

China’s securities regulator announced its decision Wednesday after reviewing the proposed IPO.

The approval came amid speculation that the size of the bank’s IPO may be much smaller than earlier anticipated due to weak market sentiment and concerns over the profitability of its operations, which focus on rural lending.
The bank was initially expected to raise as much as 30 billion US dollars. The world’s previous biggest IPO was the 22-billion-US-dollar offering of the Industrial and Commercial Bank of China (ICBC) in 2006.

The Hong Kong stock exchange will review the bank’s Hong Kong part of the dual listing on Thursday, Dow Jones Newswires reported earlier, citing people familiar with the deal.

The IPO has an over-allotment option, which allows the underwriter to sell more shares to investors than originally agreed if demand is high.
If exercised, the bank could issue up to 25.571 billion A shares and 29.223 billion H shares.

Chinese banks are rushing to raise tens of billions of dollars from the stock market after being ordered by regulators to strengthen their balance sheets following a government-backed lending spree last year to boost growth.
New loans nearly doubled to 9.6 trillion yuan in 2009 as banks heeded government calls to spur economic activity.

The government has set a loan target of 7.5 trillion yuan this year, fearing a property bubble and economic overheating as well as a potential rise in bad loans.
New loans issued by Chinese banks rebounded to 774.0 billion yuan (113.4 billion US dollars) in April from the 510.7 billion yuan in new loans extended in March.

Several other listed banks, including the top three – Bank of China, China Construction Bank and ICBC – are also seeking to raise tens of billions of dollars between them.

Earlier this week Bank of Communications, 19-percent owned by HSBC, cut a planned rights issue in Shanghai and Hong Kong by a fifth to 33.1 billion yuan.

Agricultural Bank is widely considered to be the weakest of the major state banks, while its rural lending focus and burden of loans issued to further government policy leave it less equipped to hit stricter capital requirements.
“Generally, the biggest concern in Agbank is its assets quality,” analysts led by Hu Yuanchuan at China’s Industrial Securities said in a research note this week.

The Chinese brokerage expects the bank to raise between 120 billion and 160 billion yuan (17.6 billion and 23.4 billion US dollars) from the IPO. –AFP

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