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Agricultural Bank eyes US$20b IPO

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Agricultural Bank of China announced yesterday it would issue up to 56.3 billion shares in a dual listing on the Shanghai and Hong Kong stock exchanges.

But it now seems unlikely that the only unlisted bank among the mainland's Big Four lenders will beat the Industrial and Commercial Bank of China's world-record initial public offering of US$22 billion in 2006.

The lender said in a prospectus yesterday that it would float up to 25.6 billion A shares and up to 30.74 billion H shares to raise funds to replenish capital. The combined 56.3 billion shares translate into 15 per cent of its enlarged capital.

It did not release a price range.

An analyst with direct knowledge of the share offering said the price had been set at two times the bank's book value, but the price-to-book value ratio could be slashed to only 1.5 times. The company's per-share net asset value before the IPO was 1.27 yuan (HK$1.45). Based on the projected price - roughly 1.90 yuan a piece - the dual listing could raise 107.2 billion yuan, or US$15.7 billion.

Based on a rough calculation, the IPO proceeds would be about US$20 billion even if the shares were to be sold at 1.5 times the post-IPO book value.

Pan Gongsheng, a vice-president of Agricultural Bank, said stock market conditions would be one of the decisive factors in price-setting.

The A-share IPO application will be heard by the China Securities Regulatory Commission on Wednesday and it is expected to make its trading debut in Shanghai in mid-July. Its H-share flotation application will be heard in Hong Kong soon.

Analysts originally had predicted that the bank would target as much as US$30 billion in the dual listing.

The CSRC endorsed the bank's share flotation plan on May 25 in a preliminary hearing, reflecting Beijing's eagerness to let the giant bank, the worst-performing among the Big Four, raise multibillion-yuan funds to replenish capital.

The bank was saddled with bad loans before a US$19 billion capital injection from Central Huijin, an investment arm of China's sovereign wealth fund, at the end of 2008. It also hived off 800 billion yuan of non-performing loans during the bailout.

The lender's bad-loan ratio at the end of 2007 stood at 23.5 per cent. Its non-performing loans were valued at 120 billion yuan at the end of last year, or 2.91 per cent of the total.

The mammoth IPO would be another stern test for the mainland's volatile stock market which has lost 22 per cent so far this year.

The regulator normally puts large IPOs on hold to avoid sharp declines when the market is stuck in a downward spiral. In September 2008, the CSRC suspended new share offerings to underpin the beleaguered market.

It did not reopen the primary market until June last year when investors regained confidence in the economy and corporate earnings.

'The bank's IPO has been given a top priority by the banking and securities regulators this year,' said She Minhua, an analyst at Haitong Securities. 'The IPO will be launched successfully since many institutional investors would see it as a political task to subscribe to the shares.'

The national pension fund has already invested 15.52 billion yuan for a 3.7 per cent in a pre-IPO financing deal, according to the prospectus.

Several of the mainland's corporate behemoths such as China Life Insurance and PetroChina are also among the strategic investors that are expected to participate in the bank's A-share offering, China Business News said.

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