SHANGHAI/HONG KONG (Reuters) - Agricultural Bank of China’s (601288.SS) $19 billion IPO made a lackluster debut in Shanghai, weighing on the market and underscoring the difficulty other Chinese banks will face tapping investors for billions more.
The IPO, a world record $22 billion if an overallotment option is exercised, and dual-listing in Hong Kong on Friday will complete AgBank’s transformation from technical insolvency to a sprawling giant with assets of close to $1.4 trillion and a customer base of 320 million, larger than the population of the United States.
However, it comes against a tough backdrop of a stock market that has been the world’s second-worst performer this year after Greece, questions over economic growth and rival banks returning to capital markets to supplement their coffers after a state-decreed lending spree last year.
“There’s a lot profit-taking pressure from investors, who are not optimistic about the long-term prospects of China’s economy or the banking sector,” said Liu Jun, analyst at Changjiang Securities in Wuhan.
“The debut reflects worries over slower growth and rising bad loans at Chinese lenders, and continued weakness in the stock may prompt a renewed slump in the overall market.”
Shares in AgBank, China’s third-largest bank by assets ended up 0.8 percent at 2.70 yuan ($0.40) on their first day of trade, versus a gain of 5 percent or less that analysts surveyed by Reuters had expected.
The disappointing debut weighed on the broader Shanghai market .SSEC which fell 1.9 percent in its biggest single-day decline in two weeks. .SS
The Hong Kong shares (1288.HK) list on Friday with grey market prices there indicating gains of 2-3 percent, according to electronic trading network, Instinet.
AgBank, which is aiming to raise a record $22 billion after exercising an overallotment option, took a low-key approach to its listing, not opening the debut ceremony to foreign media.
Chairman Xiang Junbo, a former soldier and scriptwriter, marked the occasion by giving a crystal model of AgBank’s Beijing headquarters to the head of the Shanghai Stock Exchange, who gave Xiang a bronze opening gong in return, television images showed.
Investors watched in vain for the beleaguered stock market to show signs of relief after shedding about a quarter of its value so far this year, in part because of jitters over the massive share offerings from AgBank and its rivals.
At one brokerage in Shanghai’s financial district, individual investors, many of them retirees, swapped theories on how much the government was controlling the stock market.
Some analysts said they saw heavy buying of AgBank shares by institutions seeking to keep it above its IPO price. The stock traded in a tight range of 2.69-2.74 yuan throughout the day.
“Apparently, investors think the AgBank IPO was overvalued, and the only reason it isn’t falling is that it’s a political task to keep it above the IPO price,” said Qiu Zhicheng, an analyst at Guosen Securities Co in Shanghai. “This is not good for other banks’ fundraisings going forward.”
However, some retail investors looked to AgBank’s modest day-one performance as a positive sign for the long run.
“A debut like this means the stock price will soon choose a direction, and I think it’s more likely to rise,” said Tony Shu, a lawyer who bought 20,000 shares, worth around $8,000, in the IPO. “I won’t sell AgBank until it reaches 3 yuan, which I think is very possible,” he said.
AgBank has about a 5 percent weighting in the Shanghai Composite Index, putting it neck-and-neck with China Construction Bank (CCB) (601939.SS) as the index’s third-biggest component.
Further weakness could bode ill for upcoming fundraisings by peers including Industrial & Commercial Bank of China (ICBC) 0349.HK(601398.SS) and Bank of China (3988.HK)(601988.SS), who are returning to capital markets to raise tens of billions of dollars to supplement their capital.
“I am naturally inclined to resist judging a stock on one day, but it’s certainly becoming clear that investors I‘m talking to are taking this as a poor indicator for financing this quarter,” said Ben Collett, Head of Equities at Louis Capital in Hong Kong.
AgBank’s debut achieved a much smaller price gain than its rival banks, whose shares jumped up to one-third in their first day of trading in Shanghai. After exercising its over-allotment, ICBC raised $21.9 billion in its October 2006 listing, which stands as the world largest IPO to date.
AgBank, founded by Mao Zedong in 1951 and which now has some 441,000 employees in more than 23,000 branches, has said it would grow faster than its major rivals, reporting on Tuesday a 40 percent jump in first-half net profit.
In a sign of the strides the country’s banking sector has made over the past decade, the “Big Four” will have a market value of roughly $680 billion if AgBank exercises its overallotment options, more than Turkey’s gross domestic product last year.
AgBank was technically insolvent just three years ago and had non-performing loans of around 24 percent. It sold 22.2 billion yuan-denominated shares in Shanghai at the top of an indicated range, while the Hong Kong deal priced in the middle of its original range.
It is expected to pay a total of $248 million to the firms that handled its IPO, a hefty fee for bankers, but the lowest underwriting payout ratio among its rivals.
People familiar with the deal told of late night summonings to discuss the sale, a dank underground data room and rigid hierarchy promoted by AgBank officials.
AgBank sold 40 percent of the Shanghai offering to 27 strategic investors including China Life Insurance (2628.HK) (601628.SS) and China State Construction (601668.SS). They are subject to lock-up periods of 12-18 months.
Eleven cornerstone investors have been selected for its Hong Kong share offering, including Qatar Investment Authority and Kuwait Investment Authority, taking a combined $5.45 billion worth of shares.
Additional reporting by David Lin and Chen Yixin in SHANGHAI and Kei Okamura in HONG KONG; Writing by Jason Subler; Editing by Lincoln Feast