Unnamed sources have told Bloomberg that Agricultural Bank of China will raise $19.2 million in its IPO (initial public offering) after pricing its Hong Kong shares at HK$3.20 and its Shanghai shares at 2.68 yuan. Neither the company nor either stock exchange has made an official announcement.
Those prices would put the amount raised by the last of China’s biggest bank to go public at $19.2 billion. That’s at the bottom of the $20 billion to $30 billion range analysts predicted for the offering. If the bank exercises its option to increase the size of the IPO by 15% to meet excess demand, that would bring the amount raised in the IPO to $22.1 billion and break the record for the most raised in an IPO, set by Industrial & Commercial Bank of China’s $21.9 billion October 2006 IPO.
It’s a tribute to the arm-twisting power of banking regulators in Beijing and to the market’s faith that the government will make sure that investors in the IPO will make a profit that the offering went at all.
The Shanghai stock market is in the middle of a bear market that saw prices hit a 15-month low last week.
And Agricultural Bank of China runs one of the riskiest portfolios among China’s big banks. The bank made a record 1 trillion yuan in new loans in 2009. The non-performing loan ratio was at 2.91% in December. That’s the highest among China’s big lenders.
The property loan portfolio was in even worse shape. 3.47% of loans to property developers were delinquent at the end of 2009.
Because Agricultural Bank of China’s loan portfolio is so risky and because the Shanghai stock market has been depressed by worries about a slowdown in China’s economic growth and a government crackdown on real estate loans, I’ve argued that this IPO is a good test of the power of the Beijing government over the financial markets. The success of this IPO under these circumstances is to me an indicator (For more on this indicator see my post https://jubakpicks.com/2010/06/16/4306/ ) that Beijing will be able to pull of the tricky task of simultaneously raising reserve requirements for its bank and giving them enough capital to lend so they can keep the economy growing. (For more on China’s attempt to have tougher bank regulation and looser lending too, see my post “Move over Charles Ponzi and Bernie Madoff—China is running history’s largest financial scam” https://jubakpicks.com/2010/06/01/4106/ )
The IPO is scheduled to begin trading on July 16.
STL- thanks
I have never heard of them- but will take a closer look for different reasons.
I was more enquiring about China stocks that are up in their bear market- I should have remembered BIDU, of course. Others?
cjxland…
Have you checked into CSKI perhaps???
A simple question for all you China watchers:
A good Chinese company that has performed counter-trend lately [up, up, up!]- preferabley larger and stronger. But, any ideas appreciated?
Ed? YX? Cao Lung Dave?
@Limno,
I agree with Jim and personally I wouldn’t touch China with a stolen checkbook, let alone my own. My objections are more philosophical than empirical. On the surface, everything seems to be going fine in China, but their economy is competitive only by brute force currency manipulation. I continue to think that there will be a day… I don’t know when… when the world says “top down driven capital allocation doesn’t work for production so why on earth did we (the world) think it works for finances?”. When a government can say “LEND” and banks do it… there’s something wrong with that system.
I’ve never been to China, but I have walked on the ground in India doing a business tour and let me tell you, they have many issues as well. But I still like India over the long term (20+ years at least). I am very skeptical of China.
Is anyone else concerned about investing in a country which Jim describes as the world’s largest
financial “scam”. As in all scams timining is everything i.e. when to get out before it collapses. I don’t believe I’m smart enough to know when its time to get out, so I am loathe to invest significantly in China. I will look to Brazil first and perhaps India. Any thoughts /comments from the group?
China Travel Stocks Drop on Goldman Sachs Report CTRIP
http://noir.bloomberg.com/apps/news?pid=conewsstory&tkr=CTRP:US&sid=a5TN3DsGncDU
Jim:
Do think there will be quite supply of Chinese stocks with so many banks and companies need to raise capital? If so, how would it effect your China strategy?
For me, this just shows how hard Bejing can twist arms and get cash invested in a poor bank. I guess if you want to play, you have to pay. Even if it means buying into a bad IPO.
The big risk for China, Brazil….I think is if protectionism sentiments pick up in the Developed world as their economy gets worse.
http://www.businessweek.com/magazine/content/10_28/b4186048358596.htm
Won,t that make it more risky? If gov decide to withdraw after ipo, expect a crash?
Jim,
I guess in your first sentence you meant $19.2 billion and not $19.2 million.
As always, thanks for keeping us up to date.