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ICBC shares rise in HK, Shanghai after record IPO

HONG KONG/SHANGHAI (Reuters) - Shares in Industrial & Commercial Bank of China, which is raising up to US$21.9 billion in the world’s largest IPO, ended 15 percent higher 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$139 billion, ranking it fifth among global banks, behind JPMorgan Chase & Co and ahead of Mitsubishi UFJ

China began listing its banks overseas last year, and all five mainland lenders trading in Hong Kong have drawn huge demand for their shares as investors downplay worries about the legacy of decades of state-directed lending.

Yang Liu, managing director at Atlantis Investment Management, bought ICBC’s IPO shares as a play on the Chinese economy, a rising currency and growing middle class, despite her preference for China Merchants Bank and China Construction Bank

“It’s too big to be ignored,” she said.

The stock leapt as high as HK$3.63, or 18 percent above its offer price, shortly after the Hong Kong market opening, compared with an IPO price of HK$3.07, before closing at HK$3.52.

ICBC was the most active stock in Hong Kong, but fell short of expectations for a first-day gain of as much as 20 percent.

“It’s better than what the average investor expected, given the size of the offering,” said Kent Yau, deputy research director at Core Pacific Yamaichi in Hong Kong.

ICBC’s domestically listed A-shares, however, disappointed investors by ending with just a 5.13 percent gain to 3.28 yuan, compared with an offer price of 3.12 yuan. The Shanghai shares rallied early by 10 percent before easing.

Chairman of the Industrial and Commercial Bank of China (ICBC) Jiang Jianqing (R) holds a photo of the opening share price of ICBC, given by Hong Kong Exchanges Chairman Ronald Arculli (L), during a ceremony marking ICBC's trading debut at the Hong Kong Stock Exchange October 27, 2006. REUTERS/Paul Yeung

The Hong Kong debut was crimped by a 0.31 percent dip in the Hang Seng Index, which earlier on Friday hit a record high.

BIG AND BIGGER

ICBC raised US$19.1 billion and is expected to expand the offering to US$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.

“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.

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, which raised US$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, one of ICBC’s underwriters.

Among its rivals, Bank of Communications trades 132 percent above its IPO price, while China Construction Bank and Bank of China are up 50 percent and 13 percent, respectively. On their Hong Kong debuts, Construction Bank closed flat and Bank of China ended up 15 percent.

BILLIONS IN BAILOUTS

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 share sale was a bonanza for foreign institutional investors led by Goldman Sachs, which paid US$2.58 billion in April for about 16.5 billion ICBC shares -- a stake that is now worth US$7.45 billion. Allianz and American Express also bought stakes alongside Goldman that are now worth a combined US$3.5 billion.

All three investors have three-year lockups on their shares.

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 global IPO was sponsored by Merrill Lynch, China International Capital Corp. (CICC), ICEA, Credit Suisse and Deutsche Bank

(US$1=HK$7.8=7.984 yuan)

Additional reporting by Rita Chang

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