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Agricultural Bank faces market volatility

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Agricultural Bank of China may have pulled off the world's largest initial public offering in a bearish market despite being the worst performer among the mainland's Big Four banks, but it cannot afford to rest on its laurels.

Rising fears of deteriorating asset quality in future may easily pull the bank's stock below the IPO price, market watchers say.

Agricultural Bank, the last major mainland lender to go public, eventually raised US$22.1 billion in a dual Shanghai-Hong Kong IPO, overtaking its bigger domestic rival, Industrial and Commercial Bank of China, to top the IPO charts.

Agricultural Bank said it sold an additional 3.34 billion A shares for 2.68 yuan (HK$3.53) each after it listed on the Shanghai Stock Exchange on July 15. Its total proceeds from the mainland portion of the IPO hit US$10.07 billion.

It fully exercised the over-allotment option in Hong Kong before July 29, netting a combined US$12.03 billion from the H-share offering.

In the process, the IPO rewrote the record US$22 billion set by ICBC in its 2006 share sale.

'The regulators have reasons to smile for the successful mega fundraising as the stock is still trading at a price above the offering rate,' Haitong Securities analyst She Minhua said. 'After all, the bank took the risk in a bear market.'

Mainland banks have been under pressure to raise fresh capital to cover the possibility of an increase in bad loans as well as to support lending growth.

Analysts said Agricultural Bank's A-share offering price of 2.68 yuan just about won investors' approval and could easily fall below the IPO price once the 'green shoe', or over-allotment, option is fully exercised.

Under the over-allotment mechanism, underwriters find buyers among their clients to sell additional shares to ensure that the shares do not trade below the offering price. Agricultural Bank closed at 2.71 yuan yesterday, near the IPO price of 2.68 yuan.

Going by stock performance within a month of trading debut, the A shares of Agricultural Bank - which has the largest network on the mainland - have gained the least among the Big Four lenders.

Shares of China Construction Bank Corp had jumped 47 per cent a month after they started trading in 2007 - the biggest gain among the Big Four.

'Market volatility will get more severe in the coming months and the big-cap banks are set to see wild price swings too,' Bohai Securities analyst Zhou Xi said.

'Investors shouldn't get carried away by the recent rebound.'

The Shanghai Composite Index has climbed nearly 10 per cent since July 15 as investors have been bargain hunting following a sharp fall.

But the major banks have lagged far behind in the rally amid worries of their worsening fundamentals.

ICBC has dipped 6 fen, or 1.4 per cent, since July 15; CCB has inched up 1 fen, or 0.2 per cent, while Bank of China has edged down 5 fen or 1.4 per cent.

Agricultural Bank's H shares closed at HK$3.35 yesterday, 4.7 per cent higher than the IPO price of HK$3.20.

Record listing

Agricultural Bank pulled off the world's largest IPO in a bearish market

The Big Four lender's dual initial public offering in Shanghai and Hong Kong raised, in US$: $22.1b

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