Thursday, July 15, 2010

Agricultural Bank of China opens 2.2% higher

SHANGHAI: Shares of Agricultural Bank of China opened higher in their Shanghai trading debut on Thursday, July 15.

Reports said AgBank, China's third-largest bank by assets, opened at 2.74 yuan (US$0.41), up 2.2% from its'' IPO price of 2.68 yuan ($0.40), lagging the first-day rise enjoyed by many of its rivals.

Reuters had earlier reported that AgBank's historic IPO was likely to lag the first-day jump in share price enjoyed by its rivals, as it aims to raise a record $22 billion in markets worried about growth and other equity sales.

A successful debut would lend support to bank stocks, help stabilise a Shanghai market that has tumbled about 25 percent this year and bode well for upcoming fundraisings by peers including Industrial & Commercial Bank of China (ICBC) and Bank of China.

"AgBank's IPO has such far-reaching implications for China in that a successful listing is seen as politically crucial, so a drop is unlikely," said Fang Jiang, strategist at Founder Securities.

However, a limited supply of liquidity and generally weak demand for initial public offerings are likely to weigh on AgBank's debut, making the initial jump that its predecessors enjoyed more difficult to achieve, analysts said.

AgBank's debut may therefore buck the typical trend, rising less than 5 percent on the first day, compared with first-day pops of up to one-third for rival Chinese banks.

AgBank, the last of China's "big four" state banks to go public, was founded by Mao Zedong in 1951 and now has some 441,000 employees in more than 23,000 branches. Its customer base of about 350 million is larger than the population of the United States.

A drop below AgBank's IPO price of 2.68 yuan in Shanghai and HK$3.20 in Hong Kong is unlikely as some institutions are expected to help stabilise its price, analysts said.

"If AgBank's listing is smooth and its shares steadily rise afterwards, that would benefit the whole market as well as other banking stocks," Wu Songkai, Huatai United Securities analyst, said.

AgBank, chaired by former soldier and scriptwriter Xiang Junbo, begins trades on Thursday in Shanghai, and a day later in Hong Kong.

Should the offering show strong demand in the first few weeks, China's third-largest lender will exercise an over-allotment, boosting the $19.3 billion raised last week by nearly $3 billion, making it the largest IPO ever.

AgBank is braving a stock market that is struggling to find its feet amid investor concerns over monetary tightening, the economy's health and a flood of new share issues.

Investors are also casting doubts over Chinese banks' growth prospects after last year's lending spree weakened their balance sheets and threatened asset quality.

AgBank, which was technically insolvent just three years ago and had non-performing loans of around 24 percent, sold 22.2 billion yuan-denominated shares in Shanghai at the top of an indicated range. The Hong Kong deal priced in the middle of its original range.

The IPO price, which represents 1.6 times 2010 forecast book value, is largely in line with rivals and leaves little room for price gains in the secondary market, analysts said.

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