Temasek to invest up to $300 million in AgBank IPO: source

A man is reflected in a Temasek Holdings logo at their offices in Singapore February 6, 2009.

SINGAPORE/HONG KONG (Reuters) - Singapore's state investment fund Temasek plans to invest up to $300 million in the Agricultural Bank of China, ahead of its roughly $20 billion IPO, a source with direct knowledge of the matter said on Saturday.

Temasek's commitment to China's third largest bank is a positive step for the offering, though it is less than the $1 billion that AgBank's underwriters are hoping to get from Middle East and Asian sovereign wealth fund cornerstone investors.

So-called cornerstone investors are a key layer of financial backing for an IPO. AgBank's Shanghai-Hong Kong listing will be the world's largest ever IPO if it exceeds $21.9 billion.

Temasek declined to comment. AgBank could not immediately be reached. The source was not authorized to speak on the record about the deal.

Reuters earlier reported that Temasek, and sovereign funds from Kuwait and Qatar were expected to sign on to AgBank's offering.

The Beijing-based bank, founded in 1951 by Mao Zedong as the rural unit of the central bank, is still known a customer base spread across China's far-flung parts, though it does a have a major presence of most of the country's major cities.

AgBank today boasts nearly 24,000 branches and employs more than 441,000 people, eclipsing Industrial and Commercial Bank of China (1398.HK) and China Construction Bank (0939.HK), the world's two biggest banks by market value.

If AgBank raises more than the $23 billion it hopes, it will be the world's largest ever IPO, beating out ICBC's $21.9 billion dual listing in 2006.

AgBank is China's third largest bank, with $1.4 trillion in assets. It also has 320 million customers, a base larger than the population of the United States.

The Beijing-based company is run by Xiang Junbo, 53, a scriptwriter and war hero, who previously served at top posts in China's central bank and National Audit Office.

Cornerstone investors agree to buy into an IPO before the pre-marketing period, allowing the underwriters to show potential institutional investors that the deal already has solid financial backing. In return, cornerstones receive preferential shares.

The sources say the IPO is expected to price on July 7, with a debut the following Thursday or Friday.

Normally, cornerstone investors are locked-up for 6 months, but with the scale of AgBank's IPO, underwriters are pushing for a one-year commitment, which will help add confidence to institutions seeking longer term returns from the offering.

The bank's top executives and Beijing officials are asking the underwriters to ensure that the stock trades up around 10 percent on its debut, important less for long term stability than a prideful opening day triumph for a high-profile Chinese institution.

(Reporting by Saeed Azhar in Singapore. Written by Michael Flaherty; Editing by William Hardy)