Banking

China ABC to apply for $30b IPO this week -sources

(Agencies)
Updated: 2010-05-04 10:07

Agricultural Bank of China (ABC), the smallest of the country's Big Four banks, will apply this week for a massive $30 billion IPO, racing with rivals to raise funds as Beijing mops up excess cash from the economy.

ABC plans to submit formal applications for a dual listing in Shanghai and Hong Kong this week with an eye to launching its IPO, the world's biggest ever, in July or even earlier, sources told Reuters on Monday.

"We all know the market window could be closed anytime within the next few months so whoever can sell their IPO first wins," said one source who was briefed on the bank's IPO plan.

"After China Construction Bank announced its rights issue plan, ABC definitely felt more hurried to push its IPO plan forward," said the source. The sources declined to be named as they were not authorized to speak to the media.

ABC's top management has asked its underwriters to aim to bring the size of its IPO close to $30 billion, versus an original, more modest target of at least $20 billion, said the sources.

The bank's ambitious IPO target came just days after two major domestic rivals -- China Construction Bank (CCB) and Industrial and Commercial Bank of China (ICBC) -- settled out their mega-sized fund-raising plans separately as Beijing asked lenders to boost capital amid potential credit risk concerns.

China on Sunday raised the proportion of deposits that lenders must keep in reserve at the central bank, another step in its months-old campaign to mop up excess cash in the economy at a time when inflation is on the rise.

Analysts expected more bank reserve ratio hikes to take place through the rest of the year, pushing banks to sell new shares or debt to increase their capital adequacy ratio.

BAILED OUT

China Construction Bank announced last week its up to $11 billion rights issue plan. ICBC will begin to seek mandates for its up to $12 billion capital-raising plan this week, sources have said.

CCB and ICBC, the world's largest bank by market value, are another two of the Big Four state lenders in China. ABC will be the last of the Big Four to go public.

ABC's underwriters, while helping the bank file listing applications and print IPO prospectus, are also busy trying to secure cornerstone investors.

Investment banks, including Deutsche Bank and JPMorgan, have invited their top clients including some US hedge funds and China-focused private equity funds to meet top management of ABC to discuss possible IPO investments.

Cornerstone investors are institutional investors who agree to subscribe to part of an IPO ahead of its public listing, with a commitment to a specified lock-up period, usually six months.

A successful line-up of influential cornerstone investors can boost confidence among smaller investors and share performance.

Beijing is keen to help ABC finish its restructuring and IPO so it can better support the country's agriculture-related sectors.

"After the IPO of ABC, the Chinese government may implement more monetary policies in the second half of this year," said a European banker, adding ABC would win approval for its IPO applications, thanks to strong government support.

More than a dozen Chinese companies, small and big, including the three banks -- ABC, CCB and ICBC -- are expected to raise around $60 billion in total in the next few months, according to market sources.

Beijing-headquartered ABC could not be immediately reached for comment on Monday when most companies in mainland China are closed for business for a public holiday.