Exchange's approval lets BOC move ahead on IPO plan

The Hong Kong stock exchange yesterday in principle approved the up to US$8 billion public share sale of Bank of China (BOC), the mainland's second-largest commercial lender.

The decision freed BOC and its bankers to launch pre-marketing of the initial public offering next week to international institutional investors, market sources said.

BOC plans to offer 21.5 billion H shares to international institutional investors and Hong Kong retail buyers next month, representing about 9 per cent of its enlarged share capital, sources said.

The Beijing-based bank, China's largest foreign exchange lender, has committed to the Hong Kong stock exchange to cap the number of shares offered during its subsequent yuan-denominated A-share offer at the same number.

According to a mainland rule, BOC must launch the A-share sale within 15 months of the H-share offering to avoid the onerous process of reapplying for government approval for the A-share sale.

Successful listing, expected either next month or early June, would make BOC the second of the Big Four state banks to go public after last October's US$9.2 billion share sales of China Construction Bank (CCB), the mainland's third-largest commercial lender.

The mainland government has encouraged its state banks to seek international public flotations which it hopes will subject the formerly opaque, inefficiently run institutions to market discipline.

Hong Kong listing rules typically require public companies to keep at least 25 per cent of their shares on public float at all times.

However, issuers could be allowed to maintain a free float as low as 15 per cent if its market capitalisation at the time of listing exceeded $10 billion.

To bring BOC in compliance with the regulation after the H-share sale, the Hong Kong stock exchange has agreed to let the mainland bank count the pre-public offering strategic investments of UBS, Asian Development Bank and Temasek Holdings towards its free float.

The three investors own about 7 per cent of BOC's shares between them.

However, the 10 per cent pre-offer stake held by a consortium consisting of Royal Bank of Scotland, Merrill Lynch, the Li Ka-shing Foundation and two US hedge funds will not be counted towards the free float.