(Chairman of the Industrial and Commercial Bank of China (ICBC) Jiang Jianqing (1st row, 6th R) and Hong Kong's Chief Executive Donald Tsang (1st row, C) attend a ceremony marking ICBC's trading debut at the Hong Kong Stock Exchange October 27, 2006. Photo: Reuters)
Shares in Industrial & Commercial Bank of China (1398.HK), which is raising up to US$21.9 billion in the world's largest IPO, rose as much as 18 percent in their Hong Kong debut on Friday after its stock sale generated huge investor demand.
The debut values the largest Chinese lender, making the first simultaneous Hong Kong and mainland China listing, at about US$141 billion, ranking it fifth among global banks, behind JPMorgan Chase & Co (NYSE:JPM - news) and ahead of Mitsubishi UFJ (8306.T).
China began listing its banks overseas last year, and all four of ICBC's predecessors to the market have drawn huge demand for their shares as investors downplay worries about the legacy of decades of state-directed lending.
The stock leapt as high as HK$3.63 shortly after the Hong Kong market opened -- toward the high end of forecasts -- compared with an IPO price of HK$3.07.
The shares pared some of their early gains, ending the morning session at HK$3.55, up nearly 16 percent, while its Shanghai-listed shares were up 7.4 percent.
"There's huge demand for the stock, but an 18 percent gain would be a good selling point for retail investors and HK$3.40 to HK$3.50 would be a huge buying zone," said Jackson Wong, investment manager at Tanrich Securities in Hong Kong.
Market watchers had expected the Hong Kong shares to rise as much as 20 percent in their debut.
Its domestically listed A-shares (601398.SS) rose as much as 10.2 percent above their offer price of 3.12 yuan to 3.44 yuan before easing to 3.35 yuan -- lagging some expectations.
The debut also helped to lead the Hang Seng Index (^HSI - news) to an all-time high on Friday.
"Investors foresee China's economy maintaining 10 percent growth every year before the 2008 Olympics in Beijing, so they're buying mainland bank shares now to access that growth," said K.C. Chan, executive director at money management firm KDB International, which bought ICBC shares for its clients.
SHOUTS IN SHANGHAI
Traders at the Shanghai Stock Exchange shouted and cheered when the Hong Kong debut price was displayed, triggering a flurry of orders in Shanghai that briefly pushed A-shares back to the morning's high.
ICBC raised $19.1 billion and is expected to expand the offering to $21.9 billion by exercising an overallotment option.
The stock sale was the most popular in Hong Kong and China history, and unmet demand for shares, combined with a surging Hong Kong market and an offering priced at a discount to peers, helped lift its first-day trading performance.
Qian Xiangjin, analyst at Goldstone Securities in Shanghai, said the A-share opening was at the low end of many institutions' expectations but was still positive since it left room for the shares to rise in the short term.
The IPO, about 75 percent of which was sold to Hong Kong and global investors and the remainder in the mainland, surpasses Japan's NTT Docomo (9437.T), which raised $18.4 billion in 1998, as the world's largest share sale.
"This is the world's largest IPO ever with the biggest ever subscription rate. That speaks volumes for the quality of the offer and for global investor confidence in China," said Damian Chunilal, president of Pacific Rim global markets and investment banking at Merrill Lynch (NYSE:MER - news), one of ICBC's underwriters.
Bank of Communications (3328.HK) now trades 137 percent above its IPO price, China Construction Bank (0939.HK) and Bank of China (3988.HK) are up 53 percent and 14 percent, respectively. On their Hong Kong debuts, Construction Bank closed flat and Bank of China ended up 15 percent.
BIG BANK, BIG DEAL
China has scrambled to get its creaky banks into better shape ahead of increased foreign competition set to kick in at the end of this year under its World Trade Organization obligations.
ICBC's IPO attracted share orders worth about US$400 billion for the Hong Kong portion of its deal and 780.7 billion yuan (US$99 billion) for its domestic deal.
That should hearten another mainland lender, China CITIC Bank, which plans to raise as much as US$2 billion in a Hong Kong and mainland share sale by early 2007.
ICBC's IPO values the lender at 2.23 times its forecast book value. By comparison, No. 2 mainland lender Bank of China trades at 2.35 times 2006 book, No. 3 China Construction Bank trades at 2.66, and No. 5 Bank of Communications trades at 3.04 times book.
At the end of June, ICBC had total assets of 7.05 trillion yuan, 360,000 staff and more than 18,000 branches all over China.
China's "Big Four" state-run banks have received billions of dollars in government bailouts to help ease their bad loan woes.
ICBC received a US$15 billion capital injection from Beijing in April 2005, helping lower its non-performing loan ratio to 4.1 percent as of June 30 this year, compared with Bank of China's 4.2 percent and 3.51 percent for Construction Bank.
ICBC's investors will be rewarded with dividends of 45 to 60 percent of net profit for 2007 and 2008, compared with 35 to 45 percent for both Construction Bank and Bank of China.
ICBC's IPO was sponsored by Merrill Lynch, China International Capital Corp. (CICC), ICEA, Credit Suisse (CSGN.VX) and Deutsche Bank (DBKGn.DE).
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