BEIJING - With
Chinese authorities' approval, the Industrial and
Commercial Bank of China (ICBC) will launch its
initial public offering (IPO) simultaneously in
Hong Kong and in Shanghai this year. Thus this
largest of China's Big Four state commercial banks
will become the first mainland enterprise to make
a dual IPO at home and overseas, which analysts
say sets a new model for Chinese companies to go
public.
The new IPO model means a company
can issue A shares on the Shanghai bourse and H
shares on the Hong Kong stock market at the same
time. Until now, Chinese authorities have only
granted a mainland company permission to make its
IPO either at home or overseas but not in both
places at the same time, though some enterprises
have been allowed to offer A shares on the
Shanghai
bourse some time after its
H-share IPO in Hong Kong.
A recent example
is the Bank of China (BOC), the second-largest of
the Big Four state lenders. BOC launched its
H-share IPO in Hong Kong in May and began to sell
A shares in Shanghai early this month. Another of
the Big Four state lenders, China Construction
Bank (CCB), made its H-share IPO in Hong Kong late
last year. The fourth, the Agricultural Bank of
China, has yet to unveil its IPO timetable.
"The 'A+H' model will help the domestic
bourse have much more connection with the Hong
Kong stock market, and domestic investors should
be more rational when buying stocks instead of [it
being] a speculative motive," said She Minhua, a
banking analyst with CITIC China Securities.
The time for simultaneous domestic and
overseas listings is ripe as the domestic bourse
revives from its five-year slump, rising to a
bullish market. The legislation for public
companies is also more in line with the
international norm. China enacted its new
securities and company laws at the start of the
year, and the benchmark Shanghai index has gained
45% since.
The securities regulator
resumed domestic IPO activities in May after a
year-long suspension. Five companies, including
the BOC, have raised 23 billion yuan (US$2.9
billion), compared with 5.7 billion yuan for all
of 2005.
"The ICBC, as the country's
biggest lender that represents the country's
rapidly growing economy, will be a model for other
companies to follow as the country's stock market
starts to lift," She said.
The bank's Hong
Kong IPO is expected to raise more than US$12
billion, while the Shanghai listing will raise at
least 20 billion yuan. The government scrapped
its earlier aim of simultaneous IPOs last year
both for Shenhua Energy and the BOC as the
securities reform was still at an early stage and
the stock market was in a slump.
But with
the BOC easily raising 20 billion yuan in the
mainland's biggest IPO to date only a month after
its Hong Kong listing, bankers believe the dual
IPO format is now timely.
"The Bank of
China's IPO price proved that there is basically
no gap between the price of H shares and A shares,
which makes it much more easy for investors to
accept the A+H model," She said.
But
completing the transaction is considered
complicated, especially as the mainland's currency
is not freely convertible. Further, the Hong Kong
and Shanghai exchanges have different application
procedures. The deal will also require two sets of
investment banks, adding to the risk.
The
bank has selected four local underwriters for its
A-share listing, the China International Capital
Co (CICC), CITIC Securities Co, Shenyin &
Wanguo Securities Co and Guotai Jun'an Securities
Co. It appointed Credit Suisse, Deutsche Bank,
Merrill Lynch, ICEA and a consortium led by the
CICC to underwrite its Hong Kong share sale at the
beginning of this year.
Statistics show
ICBC provided more than 90 billion yuan (US$11.25
billion) of new loans for high-quality projects,
30.9 billion yuan for small-scaled enterprises,
22.1 billion yuan for bill discounts, and 18.8
billion yuan for individual consumption in the
first half of this year, which accounted for 58%,
18%, 13% and 11% respectively of the bank's total
newly issued loans in the period.
The four
sectors have become the main directions for ICBC's
lending. ICBC made great progress in optimizing
its income structure in the first half of the
year. Its income from money transactions and
intermediary services was 12% higher than that
from interest spreads of deposits and loans.
Thanks to a lower bad-loan rate and high
asset quality, loans to small enterprises have
become a new profit growth center for ICBC. The
balance of loans to small enterprises topped 110
billion yuan by the end of June, 30.9 billion yuan
more than that at the beginning of the year. Newly
added loans in June alone were more than 7 billion
yuan.
The balance of loans to overcapacity
industries decreased by 113 million yuan in the
first half of the year. By the end of June, ICBC's
balance of loans mostly went to manufacturing
industries, transportation, post and storage
industries, electric power, gas and water
industries.
