Chinese bank stocks look set to become the largest-ever public listings.
HONG KONG -- The success of an initial public offering depends largely on timing the markets, unless the IPO is for one of China's largest state-owned banks.
Agricultural Bank of China (AgBank) began the pre-marketing of its mega-listing last week for what could become the world's largest IPO. To land the top IPO spot, AgBank would need to surpass the $22 billion that Industrial & Commercial Bank of China (ICBC) raised in 2006.
Although Chinese banks have a history of bad lending practices, investors were keen to buy shares of ICBC and Bank of China four years ago, based on the expectation that government support would limit the risks while allowing them to tap into China's economic growth.
AgBank has similar backing, but its balance sheet isn't as strong as its larger rivals. The lender's listing was thought to be worth as much as $30 billion, but those estimates were revised downward to about $23 billion after the bank sought approval from regulators for its dual listing in Shanghai and Hong Kong in mid-July.
Chinese stocks have been on a downward slide with Shanghai having fallen 22% so far this year while Hong Kong is down 8%. The falling valuations prompted wind turbine maker Xinjiang Goldwind Science & Technology and Swire Pacific's property division to cancel their planned listings.
But AgBank has reportedly managed to sign up a number of cornerstone investors including Hong Kong tycoon Li Ka-shing and several sovereign wealth funds, in spite of the headwinds IPOs are facing. AgBank is the last of China's four big state-owned banks to list.
The World Bank said on Friday in it latest quarterly update that China's economy continues to "grow robustly, with some softening recently."
"Leading indicators and industrial production data suggest some moderation of the pace of growth in the second quarter, although that pace is still rapid," said the report. "The global growth outlook remains favorable, in large part because of the strength in emerging markets. Nonetheless, risks around this global outlook are large."
In spite of the uncertainty, Beijing and AgBank's Chairman Xiang Junbo are determined to push the offering through a rather limited window of opportunity. Several Chinese banks have announced plans to raise funds later this year after issuing a record 9.6 trillion yuan ($1.4 billion) in loans in 2009 as part of the government's stimulus program. If AgBank were to delay its IPO, the lender could be pushed to the back of the line again.
(Robert Olsen, Forbes.com)