Thursday, July 29, 2010

AgBank exercises HK over-allotment, IPO at $20.8 bln

HONG KONG: The Agricultural Bank of China Ltd, came a step closer to becoming the world's top IPO after China's No. 3 lender released extra shares in Hong Kong, increasing the amount raised so far to $20.8 billion.

Analysts now expect AgBank to exercise the over-allotment of the Shanghai portion of its IPO as well, which will take total proceeds from the IPO to a record $22.1 billion, surpassing the $21.9 billion raised by Industrial and Commercial Bank of China Ltd in 2007.

After lacklustre debut in mid-July, AgBank's Hong Kong shares have risen about 11 percent to trade at HK$3.55 by 0210 GMT. The strong performance over the past two weeks has encouraged AgBank exercise the over-allotment to raise and extra HK$11.96 billion ($1.5 billion).

"Because of the mega size of AgBank IPO, the stock will be added to benchmark indices, making it mandatory for fund managers to include the stock in their portfolios. That has created demand for the stock," said Ben Kwong, chief operating officer at KGI Asia.

A high proportion of the AgBank IPO went to cornerstone investors, also limiting selling pressure, he said.

"(But) based on the current price of AgBank, its valuation is not very attractive compared with the other state banks. The upsize of AgBank shares price is limited," he added.

The news of AgBank's overallotment comes as China's banks continue to tap stock market to replenish their capital base.

Late on Wednesday, ICBC said it would raise $6.64 billion through a rights offer, while China CONSTRUCTION [] Bank Bank has announced plans to raise about $11 billion..

Over-allotments, known as greenshoes, are released when demand for the shares in the after market is heavy. Underwriters release the shares, set aside at the original IPO price, to the allocated holders who then become public stockholders.

That extra chunk of stock sold is added to the total proceeds of the IPO. Underwriters typically have 30 days to release or dissolve the greenshoe, depending on demand.

AgBank sold 25.4 billion shares at HK$3.20 in the Hong Kong portion of its IPO and 22.2 billion shares at 2.68 yuan in Shanghai.

Its Shanghai shares are up about 6 percent form its offer price and analysts now expect AgBank to release $1.32 billion of additional shares there.

The lead underwriters of the A Share Offering may exercise the over-allotment option in the 30 days following its July 15 debut. - Reuters


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