Date 13 July 2010
With the Western powers almost crippled by their own greed, it seems like Asia’s time has come to rise and take over the world economic stage. The USD $19.2 billion raised by Agricultural Bank of China’s initial public offering (IPO) might appear to many as an adept symbol of China’s firm move to the top.
The IPO is a significant event for China in numerous ways. The bank’s dual listing on both Shanghai and Hong Kong stock exchanges has the potential to be the world’s largest public offering if the greenshoe (overallotment) option is exercised, making the raised amount to USD $22 billion, eclipsing the previous record held by fellow state bank, Industrial and Commercial Bank of China. Amidst uncertain market conditions, Agricultural Bank of China’s ability to raise the colossal amount of capital was impressive to say the least. The deal attracted much interest from sovereign funds and institutional investors who are betting on Agricultural Bank of China as a proxy to the China growth story. Key investors in the IPO include Qatar Investment Authority ($2.8 billion), Kuwait Investment Authority ($800 million), Standard Chartered Bank ($500 million), Radobank Nederland ($250 million), Seven Group Holdings Ltd ($250 million) and Temasek Holdings ($200 million).
Agricultural Bank of China’s listing also marks the reversal of roles for China’s state lenders. In the late 1990s, China's top four lenders were on the brink of bankruptcy due to decades of government-directed lending to unprofitable state-owned enterprises. The government spent some $800 billion to clean up their balance sheets, saddled with non-performing loans, turning the state-controlled lenders into commercial entities qualified for listing. Agricultural Bank of China is the last of its brethren to finally go public.
It is important to keep a balanced view of the situation. Despite being public listed entities, there was no doubt that China’s state banks were ‘encouraged’ by the Chinese government to turn on the credit tap in 2009, to combat the effects of the global slowdown. In recent months, with recapitalization being the new priority, Chinese banks have been turning to the financial markets for fresh capital. Agricultural Bank of China’s bold IPO timing could be interpreted as more a matter of need than choice.
The growth of China’s financial markets is taking place rapidly and new regulations for the financial sector are being pushed through the appropriate channels. The increasing sophistication of China’s financial markets bodes well for foreign direct investment as it brings more financing options to the table, giving corporations additional means of funding their expansion and growth. In addition, the development and liberalization of China’s financial sector would also attract more quality entrants into the financial markets, further increasing its depth and breath.
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