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2010 IPO of Agricultural Bank of China (AgBank) is Largest Ever Public Offering


The roadshow has left the station as the Agricultural Bank of China kicks off its tour to entice investors in the bank’s 2010 IPO. The AgBank stock IPO is currently figured to occur on July 15th and which could raise $20-$30 billion. ABC, as the Agricultural Bank of China is also known, is expected to offer a 15% stake (53 billion shares) in listings on the Shanghai (A shares) and Hong Kong (H shares) exchanges. Pricing is expected to be announced on July 8th.

The ABC IPO is the last of the four huge state-owned banks to offer publicly traded shares, and it is also possibly the weakest. Nevertheless, the bank has reportedly signed up two cornerstone investors, Britain’s Standard Chartered bank and China Life Insurance Co. (NYSE: LHC). Other rumored investors include the sovereign wealth funds of Qatar and Kuwait; Temasek Holdings, Singapore’s state-owned investment company; and Petrochina Co. Ltd. (NYSE: PTR).

The bank’s weakness was highlighted in 2008, when it took a $19 billion bailout from China’s sovereign wealth fund. ABC’s non-performing loan ration totaled nearly 24% at the end of 2007. The bank’s non-performing loan rate fell to 2.91% at the end of 2009, although Caixin reports a 7.85% rate for “special attention loans,” which are defined as weak loans that could become non-performing. The 2.91% rate is the highest among China’s four largest banks.

The Agricultural Bank of China also faces a large gap between its expectations for the IPO and the market’s perception of the bank’s value in the current investment environment. The Financial Times reported that ABC’s asking price is about equal to 1.94x the price-to-book ratio of the IPO price of Industrial & Commercial Bank of China at the time of its IPO. Investors, so far at least, have not been willing to offer more than 1.2x the price-to-book ratio.

When ICBC went public in October 2006, it set a world record for an IPO of $21.9 billion. If ABC can persuade investors that it has cleaned up its non-performing loan act and that it is worth considerably more than ICBC, the ABC IPO could set a new record. That would truly be a major accomplishment, given the languishing equity markets in China and the huge infusion of shares that ABC plans to introduce into that market.

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