China AgBank set for massive stock debut

Agricultural Bank of China debuts on the Shanghai stock market today, completing a great leap from peasant policy bank to capitalist darling in what is expected to be a world record initial public offering.

AgBank’s performance in Shanghai and in Hong Kong (where trading starts tomorrow) will signal whether it is maximising the number of additional shares it can offer and has raised a record $22.1 billion.

The listing of the last of China’s “Big Four” state banks will also test the resilience of the Chinese stock market in a volatile global economic climate.

Shares ended 0.82 per cent higher in Shanghai yesterday, narrowing earlier gains as caution prevailed ahead of AgBank’s mega-debut. “It may be a turning point for the banking sector if AgBank’s debut is solid,” said Shen Jun, a strategist for BOC International, Bank of China’s investment unit.

“It may drive up the whole banking sector and the broader market may move with it.”

Despite performing better than their Western peers, Chinese bank shares faired poorly in the first half of 2010 as the benchmark Shanghai Composite Index dropped more than 25 per cent.

China is on track to be the world’s biggest IPO market this year with up to 300 companies expected to raise 500 billion yuan ($73.6 billion), according to PricewaterhouseCoopers.

Recent Chinese IPO shares have gained 29 per cent on average in their first month of trading, according to Shanghai-based Jesa Investment and Management Co.

BOC’s Shen told AFP: “The key factor to watch in AgBank’s debut is whether it will fall below the IPO price. Falling below the IPO price will hit the market, but the chances of that are not big.”

AgBank’s debut Shanghai price is to be 2.68 yuan, but the total number of IPO shares is not yet known and will be determined by its market performance.

A strong start will prompt AgBank to fully exercise its over-allotment options by selling an additional portion of up to 15 per cent of the number of shares initially issued, making the IPO the world’s largest.

Mainland analysts are optimistic AgBank will soar. Its shares are expected to rise five to 15 per cent on debut, according to Soochow Securities.

Hong Kong investors are likely to follow Shanghai’s lead, said Jonathan Siu, research analyst at investment bank Core Pacific-Yamaichi in Hong Kong.

“The performance of the Hong Kong listing will very much depend on (Shanghai),” he told AFP. “If the (Shanghai) shares perform well on their debut, then it should be the same in Hong Kong.”

Siu predicted a five to 10 per cent rise for the Hong Kong shares on listing day.

AgBank, which has about 24,000 branches, mostly in China, and more than 320 million customers, is expected to post a first-half net profit of more than 46 billion yuan, the official Shanghai Securities News reported this week.

That would represent an increase of around 40 per cent from a year earlier, the report said.

It would also outpace the bank’s previous projections of a full-year net profit of 82.9 billion yuan.

The bank’s bad debt ratio dropped from 4.32 percent in 2008 to 2.91 percent in 2009, but experts say that figure is far higher than its rivals, with the company earning more than a quarter of its revenue from rural banking.