Chinese IPO attracts $19 billion

By Don Lee

Oct. 28, 2006 12 AM PT

Times Staff Writer

SHANGHAI —

China’s biggest bank launched the world’s largest initial public offering of stock Friday, underscoring the nation’s powerful economic growth and the significant strides made in its long-troubled financial sector.

Industrial & Commercial Bank of China, the largest of the country’s big four state-owned banks, raised at least $19.1 billion in the first-ever dual listing on the Hong Kong and Shanghai stock exchanges.

The previous record was an $18.4-billion initial stock sale by Japanese mobile phone company NTT DoCoMo Inc. in 1998.

Chinese officials are trying to prepare their top domestic banks to do battle with global powerhouses such as Citicorp and HSBC. In the last year, two of the country’s other big four banks -- China Construction Bank and Bank of China -- attracted billions of dollars in IPOs and have thus far rewarded investors with higher stock prices.

Investors clamoring for Chinese bank stocks are betting on the country’s growth and that Beijing will do whatever it takes to make its showcase banks succeed, said James Barth, a banking expert at the Santa Monica-based Milken Institute.

The bank’s top executives kicked off trading Friday by banging a gong -- a tradition in the Shanghai stock exchange -- and by sipping Champagne. But by day’s end, the mood was not entirely festive.

In Hong Kong, shares of the Beijing-based bank rose 14.6% from their initial offering price, on the high end of analysts’ expectations. But in simultaneous trading in Shanghai, shares closed just 5.1% higher.

“It was disappointing to many investors and analysts,” said Qiu Zhicheng, an analyst at Haitong Securities in Shanghai.

Chinese officials launched ICBC’s stock in Hong Kong and Shanghai at the same time to boost China’s mainland stock markets, which have gained sharply this year after several years of poor performance.

But ICBC’s weaker-thanexpected launch on the 16-year-old Shanghai exchange shows how much farther it has to go to catch up with established financial markets such as Hong Kong and build credibility with mainland Chinese investors.

“The trust issue is involved in a lot of this,” said Andy Xie, former chief economist in Asia for Morgan Stanley in Hong Kong. “Most Chinese do not view the stock market as a place for long-term investment.”

Nonetheless, stock analysts and economists regarded ICBC’s debut as an overwhelming success. The initial offering of about 50 billion shares at 39 cents each attracted about $500 billion in orders. Because of the extraordinary demand, the bank’s stock sale was expected to rise to $21.9 billion -- with $16 billion raised in Hong Kong and $5.9 billion in Shanghai.

Just a few years ago nobody could have imagined such a performance for a Chinese enterprise, let alone a state-run bank. In mid-2003, about 30% of ICBC’s loans were seriously past due or underperforming, stemming from corruption and poor lending practices. The bank’s problem loan ratio has since fallen to about 5%, compared with 1% to 2% for leading international banks, thanks to the government’s injection of cash, the transfer of bad debts and a boom in new loans.

As of June 30, ICBC had assets of $893 billion, about 18,000 branches and a workforce of 360,000. The bank was established in 1984, in the early years of China’s market reforms, and in 2005 had 150 million individual customers and more than 2.5 million corporate clients.

In addition to raising money to bolster ICBC’s capital levels, some Chinese officials hope that the offering will bring further reforms by holding management accountable to shareholders and maintaining international standards of operating and reporting. But few see any immediate change coming.

The offering made available only about 15% of ICBC’s total shares. The central government controls 72.5% of the bank’s stock, with the rest in the hands of China’s national pension fund and a group of foreign strategic investors, including Goldman Sachs Group Inc. and American Express Co.

Analysts say it will take time for ICBC to instill practices and a culture of making quality loans, rein in profligate branches that often operate on their own and learn how to make money without depending on favorable interest rate policies and other government edicts.

“ICBC still has a lot to do to make its supervision stricter and more transparent,” said Zuo Xiaolei, chief economist at China Galaxy Securities in Beijing.

Of the initial offering, he said, “I would say it is just the first step of a long march.”

don.lee@latimes.com

Cao Jun in The Times’ Shanghai Bureau contributed to this report.

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The top 10

The world’s top 10 initial public stock offerings

(In billions)

ICBC, China, 2006: $19.1

NTT DoCoMo, Japan, 1998: $18.4

Enel, Italy, 1999: $17

Deutsche Telekom, Germany, 1996: $13

Bank of China, China, 2006: $11.2