ICBC plan sets limit on new shares in flotation

Industrial and Commercial Bank of China, the mainland's largest commercial lender, has proposed limiting the number of new shares in its up to US$15 billion international public share sale later this year in a bid to gain a higher valuation.

A preliminary listing plan suggested that 50 per cent of the initial public offering shares consist of new shares, with the remainder sold from its two government shareholders, according to sources.

The proposal aims to help ICBC, which commands almost 20 per cent of China's banking markets, boost its return on equity (ROE) and hence share valuation.

The move will need approval from an inter-government committee headed by People's Bank of China governor Zhou Xiaochuan and with representation from key ministries with a say on the reform of the Big Four state banks.

'A low ROE will hurt investment sentiment,' a source said. 'And the resulting low valuation will hurt the interest of the government shareholders as well [through the dilution effect].'

Wholly state-owned financial holding company China SAFE Investments and the Ministry of Finance each held 50 per cent of ICBC after a US$15 billion state capital injection kick-started the Beijing-based lender's financial reform last year.

Their stakes were equally diluted by ICBC's sale of a 10 per cent interest to foreign strategic investors, including Goldman Sachs, Allianz Group and American Express, for a combined US$3.78 billion.

ICBC may sell about 10 per cent of its enlarged capital as early as September.

It has set a 13.8 per cent ROE target for this year, compared with China Construction Bank Corp's reported 21.59 per cent return on average equity last year after exclusion of tax exemptions granted by the government to aid its financial restructuring.

The first of the Big Four state banks to go public, CCB in October priced its share offer at 1.96 times forecast earnings.

CCB has seen an almost 40 per cent rise in its share price, although stocks of offshore-listed mainland financial firms have now come under pressure from upcoming listings of domestic peers and higher market expectations for financial performance.

ICBC's strong equity base also reduced the urgency to raise new capital for itself in the float.

The state capital injection and removal of 705 billion yuan of non-performing loans raised ICBC's capital adequacy ratio to 10.26 per cent at the end of December, above the minimum of 8 per cent.