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    China Business
     Sep 29, 2006
Pricing the 'biggest IPO in history'

BEIJING - The Industrial and Commercial Bank of China (ICBC), the country's biggest commercial bank, started consultations on Wednesday on the pricing of its initial public offering (IPO), probably the largest in history.

ICBC will be the first major Chinese firm simultaneously to list on mainland Chinese and overseas stock markets. Many Chinese blue chips list first on overseas markets before going public on domestic exchanges, drawing increasing criticism from mainland


The final pricing of the shares is likely to take place on October 23, with trading starting simultaneously on the Shanghai and Hong Kong stock exchanges on October 27, the bank said in an announcement to the Shanghai Stock Exchange.

Although the bank did not indicate what the IPO price would be, analysts expect it to be between two and 2.6 times the lender's book value.

"The shares will probably be priced at around 2.1 times its predicted book value this year," said She Minhua, a banking analyst at CITIC China Securities. The bank has great development potential because of its large asset scale and revenue base, said She.

Media reports said the ICBC is in talks to buy PT Bank Halim Indonesia, in a bid to expand outside the country to diversify its sources of income and improve profitability.

ICBC's A-share offering plan was approved on Tuesday by the China Securities Regulatory Commission, after getting the nod for H-share sales in Hong Kong last week from Hong Kong market regulators.

The bank plans simultaneously to issue 13 billion A shares - which typically have enhanced voting rights or other benefits compared with other forms of shares - in Shanghai and 35.39 billion H shares in Hong Kong, it announced.

If the over-allotment or "green shoe" option is fully exercised, the total number of A shares will rise to 14.95 billion and the total number of H shares issued will reach 40.7 billion.

The ICBC's IPO may raise between US$19 billion and $21 billion. The sale is expected to be the world's largest ever IPO, surpassing the record of $18.4 billion raised by Japan NTT Mobile Communications in 1998.

The subscription period for institutional investors in the Shanghai portion of the IPO will take place from October 16-19, while retail investors will be able to subscribe on October 19, ICBC said.

A-share underwriters were to give pre-marketing presentations to price-consultation participants in Beijing, Shanghai, Shenzhen and Guangzhou from this Wednesday to Friday and again from October 9-11.

"ICBC's share offering will put some pressure on the domestic stock market, as part of its funds will turn to the new shares," said She. "But it is unlikely to have a big impact due to sufficient market liquidity."

ICBC's A shares should not have a market value any lower than that of the Bank of China's, said She. BOC's A shares have been traded at between 3.2 and 3.46 yuan over the past month.

However, some analysts worry that ICBC's relatively large non-performing-loan ratio will hurt its performance. The bank has cautioned investors that it faces various business risks including NPLs and increased competition.

By the end of June, ICBC's NPL ratio stood at 4.1%, down from 4.69% in December.

Its loan book showed the bank has the greatest exposure to the manufacturing sector, which accounted for 27.8% of its domestic corporate loans, with the real-estate market accounting for 9.1%.

"A significant downturn in any industry in which loans are highly concentrated may lead to a significant increase in non-performing loans," it said.

In addition, China's banking industry is becoming increasingly competitive as foreign banks prepare for the opening of the financial sector at the end of this year. China is overhauling its state-owned, debt-laden banking sector prior to opening the financial market fully to foreign banks by year-end under a World Trade Organization commitment.

The government has moved to write off the major banks' bad debts, reshuffle them into shareholding companies, invite strategic foreign investors and let them go public.

ICBC is the third of the Big Four banks to go public. Another two of the Big Four, the BOC and China Construction Bank (CCB), have already become publicly listed companies. BOC is listed on both the Hong Kong and Shanghai stock exchanges, while CCB is only listed in Hong Kong. The fourth of the Big Four, the Agricultural Bank of China, is restructuring in preparation for a possible IPO.

Since June 2005, there have been four mainland government-funded banks listed on the Hong Kong stock exchange, raising US$25 billion. In addition to BOC and CCB, the other two leaders are Bank of Communications and China Merchant Bank.

Analysts said the new share offering would help boost the ICBC's capital adequacy and improve its management.

(Asia Pulse/XIC)

ICBC confirms 2006 listing plans (May 23, '06)

China's latest IPO is a two-for-one deal (Jul 22, '06)


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