Category Banking & Finance

China’s ICBC launches record IPO, shares soar

Chinese lender raises $21.9 billion, while shares climb 15 percent in market debut.

October 27 2006: 6:53 AM EDT

HONG KONG (Reuters) — Shares in Industrial & Commercial Bank of China, which is raising up to $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. (Charts) 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.

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 $19.1 billion and is expected to expand the offering to $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 $400 billion for the Hong Kong portion of its deal and 780.7 billion yuan ($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 (Charts), which paid $2.58 billion in April for about 16.5 billion ICBC shares — a stake that is now worth $7.45 billion. Allianz and American Express (Charts) also bought stakes alongside Goldman that are now worth a combined $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., ICEA, Credit Suisse and Deutsche Bank

China Lawmakers Consider Extending Bking Supervisor Power

BEIJING -(Dow Jones)- China’s national legislature started deliberations Friday on revisions to the country’s banking regulatory law, a move that could broaden banking regulatory powers to include non-financial institutions and individuals, the official Xinhua News Agency said in a brief report.

The revisions could add power to China’s primary financial watchdogs, the China Banking Regulatory Commission and the People’s Bank of China.

Revisions to Chinese laws are often a long and drawn out process. China’s corporate bankruptcy law was approved in August by the Standing Committee of China’s National People’s Congress after 12 years of drafting and deliberation.

Stock index futures trading to start in early 2007

Oct. 25 – The trading of stock index futures will be launched at the Shanghai-based China Financial Futures Exchange in early 2007, the country’s top regulator Shang Fulin said in Beijing Tuesday.

“With the listing of some major state-owned commercial banks and big enterprises, there is a much stronger connection between the stock index and the national economy. The opportunity to trade stock futures has arrived,” the chairman of China Securities Regulatory Commission (CSRC) said at a seminar on financial derivatives.

The capital market has been keen to develop financial futures for years. It is also a must for further development of the capital, monetary and insurance market, Shang said.

China Financial Futures Exchange, the country’s first financial derivatives exchange, was inaugurated on September 8.

Zhu Yuchen, the exchange’s general manager, said trading stock futures will provide investors with a new risk hedging tool.

“Currently investors can only profit when the index is going up. With the introduction of index futures, investors now can also make money when the index falls,” he said.

Official: China to loosen control on RMB gradually

BEIJING, Oct. 23 – China will loosen controls on its currency gradually and should step up development of financial tools such as derivatives to help banks and companies cope with a more flexible exchange-rate system, offcial from the People’s Bank of China said.

China will “improve the yuan’s flexibility gradually,” Su Ning, deputy governor of the People’s Bank of China, said at an economic conference in the eastern city of Suzhou, Jiangsu Province at the weekend, Bloomberg News said.

“China needs to develop new financial tools and enhance financial reform to help remove the burden on its financial system,” Su said.

A record trade surplus has flooded the world’s fourth-largest economy with cash, spurring investment in factories and real estate that the government is concerned may lead to overcapacity and bad loans. Foreign-exchange reserves have surged to almost 1 trillion U.S. dollars, fueled by exports that the United States and Europe say are supported by an undervalued currency.

China has limited gains in the yuan to 2.6 percent since dropping a decade-old peg to the US dollar in July last year. The currency strengthened 0.1 percent to 7.9025 to the dollar on Friday, according to the China Foreign Exchange Trade System.

Chinese officials have said repeatedly that the yuan’s exchange rate will be loosened only gradually because the nation’s banks and companies aren’t prepared to cope with a free-floating currency. China has been introducing derivatives such as interest-rate forwards and swaps to provide tools to hedge risks, and plans to add interest-rate and stock-index futures.

The government should step up reform of the nation’s banks including Agricultural Bank of China, Su said. The Beijing-based lender is the last of the big four state-owned banks awaiting restructuring and a government bailout.

Agricultural Bank is close to completing a plan to create a shareholding company, the Xinhua news agency reported last week, citing central bank Governor Zhou Xiaochuan. The government may inject 100 billion dollars into the bank, the agency said.

Industrial & Commercial Bank of China, the nation’s biggest lender, raised 19.1 billion dollars in the world’s biggest initial public offering, bankers involved in the IPO said. Bank of China Ltd and China Construction Bank Corp have also listed in Hong Kong in the past year.

Banking investment in China set to skyrocket

Beijing, Oct 17: Around 5.7 billion US dollars in insurance capital could flood into China’s banking sector this year after the nation’s insurance watchdog unveiled a package of investment rules.

According to detailed rules issued by the China Insurance Regulatory Commission (Circ) for insurers’ equity investment in banks yesterday, insurance institutions could invest no more than three per cent of their total assets in state-owned commercial banks, joint-stock commercial banks and city commercial banks.

By the end of last year, the total assets of China’s insurance sector had reached 1.5 trillion yuan (190 billion US dollars), implying that 45 billion yuan (5.7 billion dollars) in insurance capital could be poured into China’s banking sector this year.

“Equity investment in banks is just the first step, and we are considering regulations on investment in fixed-assets projects and state-owned enterprises,” a Circ official was quoted as saying by China daily.

In guidelines published in late June, the regulator expressed its support for insurers’ investment in banks, part of its efforts to boost insurers’ investment returns.

“We support insurance companies buying into, or even taking controlling stakes in, well-managed, profitable banks that have a strong customer base,” Circ Chairman Wu Dingfu said earlier.

The regulation stipulated that insurers could use their registered capital and provisions over 10 years for the investment.

In terms of purpose and scale, insurers’ investment in banks is divided into two types general and grand investment.

Those accounting for less than a five per cent stake in a bank are classified as general investment, while those greater than five per cent are regarded as grand investment. There are no upper ceilings for the investment.

If an insurer plans to make a grand investment, its total assets by the end of last year should be no less than 100 billion yuan (12.7 billion US dollars).

For any investment taking a 10 per cent stake or above, the insurer should have total assets in excess of 150 billion yuan (19 billion US dollars) by the end of last year.

Meanwhile, those target banks for general investment will have to meet a capital adequacy ratio of up to eight per cent, a non-performing loans ratio lower than five per cent and a return on net assets of up to 12 per cent.

In fact, China’s largest life insurers have been quite investors in banks.

In late July, Ping An Insurance (Group) company became the controlling shareholder in Shenzhen city commercial bank after it bought an 89.24 per cent stake in the lender for 4.9 billion yuan (620 million dollars).

Ping An has also been in talks with Beijing-based China Everbright Bank. Sources said the discussions are at a very early stage and it is uncertain whether they will result in an agreement.

Bureau Report

Insurance market after China´s WTO entrance

It is almost five years since China joined the World Trade Organization on December 11th of 2001.

On Wednesday, China’s insurance market regulators and some 200 industry players are meeting in Beijing to discuss their experience in the past five years and the possible challenges ahead.

Li Kemu, the vice chairman of China’s Insurance Regulatory Commission made the opening speech at the Insurance and Financial Market Forum on Wednesday afternoon. He stressed China is opening to all and will give them equal treatment, whether they are domestic or overseas players. He said there are now 44 overseas insurance companies operating in China, while another 135 have representative offices here. In big cities such as Shanghai and Guangzhou, overseas insurers claim some 20 percent of each city’s total premium.

In 1992, AIG set up the first wholly-owned foreign insurance company in Beijing, which is seen as the beginning of China’s opening up of the industry. Another milestone was made in 2004, when China lifted geographic restrictions against foreign insurers and allow them to operate corporate insurance, health insurance and annuity. At present, China restricts overseas life insurers to hold less than 50 percent in their joint ventures. But to foreign insurers, it is still a promising market.

Meanwhile, Li Kemu said the country will further broaden the investment channels for insurance companies. Besides involving in the stock market, banking industry and infrastructure construction, Li said his commission is negotiating with China’s Ministry of Railways, and there will soon be insurance capital flowing into China’s railway.

China Life Insurance Sector Takes a Giant Leap

Insurance sector in China is showing a continuing growth during the past few years. There‘re hordes of opportunities present for players in this sector.

According to recent news, there’s been a remarkable increase in the profits of China LIC (Life Insurance Co.) during the 1st half of 2006. The insurance company is said to have earned around 8.97 Billion Yuan during this period as compared to 5.21 Billion Yuan in the year-earlier period.

As per Macquarie’s research note released Sep 18 2006, the results would probably be dominated by investment gains from both sharp rally in the equity markets in China and strong post IPO rally of Bank of China, of which China Life holds 394 Million shares.

Bank of China has cautioned a slow down in the equity markets in China. Growth in policy fees and premium is likely to decelerate from 22 percent to 15 percent in the 2nd half of 2006.

“China Insurance Sector Analysis (2006)” the latest market research report published by RNCOS- a market research and analysis firm- provides an analytical overview of every aspect of the insurance sector in China.

According to this report, “Higher income among the Chinese and growing need for financial products to safeguard any unexpected loss are the main drivers for the China insurance market. Considerable amount of time and efforts have been put in to develop modern insurance solutions, so that insurance needs among the Chinese are met.”

Issues and facts addressed by this report include:

– Marketing strategies of key players in the insurance industry
– Growth in Health and Group insurance driving the Insurance sector in China
– Demographic factors, like death and birth rates, which affect the insurance market in China
– Emerging opportunities and challenges in this sector
– Factors that spur the growth of Life and Non Life insurance in China.

About the Report

RNCOS report on insurance sector in China provides extensive research and objective analysis of the Insurance Sector in China. It helps clients in analyzing the opportunities critical to the growth of Insurance market in China.

About RNCOS

RNCOS, incorporated in 2002, provides Market Research Reports for your business needs and aims to put an end to your information pursuit. Our expertise in gathering global business information for industry research, corporate training, growth consulting, and business consulting, brings reputed companies and firms to us for business enhancement solutions. We can be your one-stop-shop for Industry research information and niche market analysis.

Morgan Stanley buys bank, gets China licence

SHANGHAI/SINGAPORE, OCT 2: Morgan Stanley, the world’s largest securities firm by market value, said it acquired Nan Tung Bank, China, giving it a commercial banking licence in China from which it can apply to do business in the local currency and offer new products, including mortgage-backed securities.

The acquisition, approved by China Banking Regulatory Commission, will enable Morgan Stanley to apply for a licence to offer yuan- denominated services in the world’s fastest-growing major economy.

The commercial banking license currently enables Morgan Stanley to offer foreign -currency denominated services, including deposits, mortgage loans, and trade finance to individual and corporate customers based primarily in the Pearl River Delta region of Guangdong Province, the New York-based firm said on Monday.

‘‘Nan Tung Bank is a good strategic fit for our China business,’’ Wei Christianson, chief executive officer of Morgan Stanley in China, said in an e-mailed statement. ‘‘This platform will allow us to provide a wider array of new product capabilities that are currently being offered only by commercial banks with a presence within China.’’

Zhuhai-based Nan Tung Bank, formerly funded by a Macau-based unit of Bank of China, is now a wholly owned subsidiary of Morgan Stanley, the US firm said, without giving details on pricing. Nan Tung Bank, which has only one branch and fewer than 40 employees, serves customers mainly from Hong Kong and Macau.

By fully acquiring Nan Tung, Morgan Stanley will be eligible to apply for a local-currency license immediately, rather than wait for five years had it started operations in China from scratch. Morgan Stanley can also apply to offer derivatives and foreign-exchange products to local and overseas clients based in the world’s mostpopulous nation.

‘‘That’s the right thing to do but you’d need to get the products past the regulator,’’ said Roman Scott, a Singapore-based partner at Boston Consulting Group Inc. ‘‘Everyone would love to do structured products or derivatives if they were allowed to do so in China, if the markets were stable enough to do it.’’

Rivals including Goldman Sachs Group Inc and UBS AG have bought minority stakes in Chinese lenders, which won’t help them win banking licenses to offer services on their own.

Still, a ban by the China Securities Regulatory Commission last month on international securities firms from buying stakes in local brokerages has blocked a route for Morgan Stanley’s expansion in China.

Nasdaq and NYSE Seek China IPOs

BEIJING — The New York Stock Exchange (NYX – commentary – Cramer’s Take) and the Nasdaq Stock Market (NDAQ – commentary – Cramer’s Take), worried they’re losing out on big IPOs from China, are trying to boost their visibility in the region. They’re staffing up and touting the benefits of a U.S. listing to dealmakers at investment banks, private equity outfits and law firms in China.

“Obviously China is a very exciting market. We see it as the fastest-growing market outside the U.S., as well as the strongest market internationally,” says Charlotte Croswell, the London-based head of Nasdaq International.

This year the Nasdaq started publishing Going Public: A Guide for Chinese Companies to Listing on the U.S. Securities Markets. Written in both Chinese and English, it details minimum listing requirements, explains the role of investment banks and accountants, and even sets out a sample 20-week IPO timetable, from start to finish.

There’s no mystery why the American exchanges are feeling anxious.

Last year, China’s IPO proceeds of $24.3 billion ranked second only to those of the U.S., whose companies raised $33.1 billion, according to Ernst & Young/Thomson Financial. And in 2005 China claimed three of the world’s 10 biggest public offerings.

But a U.S. listing is no longer the default for ambitious Chinese firms. All three of the Chinese companies on 2005’s 10-biggest IPO list — China Construction Bank, China Shenhua Energy and Bank of Communications — passed up the U.S. in favor of listing in Hong Kong. The Bank of China, another multibillion-dollar IPO, followed suit earlier this year.

The moves are part of a broader trend of foreign firms passing up the U.S. exchanges.

Companies are discouraged by America’s higher regulatory burdens, litigious investors and different accounting requirements. (The U.S. uses generally accepted accounting principles, or GAAP, while some other countries employ a framework called international financial reporting standards, or IFRS.)

And foreign companies that list outside the U.S. don’t have any problem reaching American money managers. They can simply arrange ahead of time to sell shares to big institutional investors on the day of their IPO.
As a result of all this, the American exchanges are having to work harder to attract overseas listings — and China is a key focus. Currently the NYSE has 17 companies listed from mainland China, while the Nasdaq has 29.

The NYSE “has an aggressive marketing campaign out to show the advantages of listing in New York as opposed to listing overseas,” says Alan Seem, a Beijing-based partner at the law firm of Shearman & Sterling.

The NYSE and Nasdaq both are seeking Beijing’s go-ahead to open offices in mainland China. The NYSE now has two salespeople on the ground in mainland China, with another in Hong Kong.

The Big Board is also hoping to score new listings business through NYSE Arca, an all-electronic trading platform aimed at small, fast-growing companies that don’t yet meet the standards of the main board — a category likely to include many firms from emerging markets such as China. Companies can aim to graduate to the NYSE as they grow bigger.

This year Nasdaq tapped a new Asia-Pacific executive to be based in Hong Kong who will work with another salesperson already focused on China.
Both exchanges say they’re seeing progress on the mainland. The NYSE is in talks with four or five Chinese companies “that are considering the U.S. capital markets,” according to Noreen Culhane, the NYSE’s executive vice president of the global corporate client group.

“Our pipeline, I would say, is stronger now than it was 12 months ago,” says Nasdaq’s Crosswell, although she acknowledges that some of those IPOs may not take place for a couple more years.

Even as they vie for more Chinese business, both U.S. exchanges deny competing with the Hong Kong bourse.

“We say we don’t compete with local markets,” explains Crosswell. Chinese IPOs “have always gone to Hong Kong. That has always been quite a natural home for them as well as Shanghai and Shenzhen.” Nasdaq offers a “complementary” listing that can increase their visibility, market liquidity and access to capital, she says.

But in fact, while Shanghai and Shenzhen are still crowded with weak, poorly run government-owned companies from the mainland, the Hong Kong exchange has emerged as a more powerful regional force over the past few years. Its legal infrastructure is much stronger than that on the mainland, and its regulations are respectably high — though not as burdensome as those in America.

Still, American exchanges contend they are in a different league from their peers in Hong Kong and elsewhere. The 2,700 companies listed on the NYSE claim a total market value of $23 trillion. “This is the deepest investor pool in the world. Companies come here because they understand there is a valuation premium that comes with being associated with high listing standards,” says Culhane.

Companies that trade on an American exchange are able to give stock options to employees based in the U.S. They also benefit from a higher profile that can help them attract stateside customers, business partners and employees.

That’s important for Chinese outfits with international ambitions — or so say the NYSE and Nasdaq. But lately, a small but notable number of major Chinese companies don’t seem convinced.

China’s biggest bank breaks record with IPO

Industrial & Commercial Bank of China attracted a great number of retail investors and is expected to raise up to $22 billion, the most ever raised in a stock debut anywhere.

HONG KONG – (AP) — China’s biggest lender, Industrial & Commercial Bank of China, attracted the largest amount of orders ever from Hong Kong retail investors for the bank’s initial public offering, news reports said Friday.

The bank’s dual IPO in Hong Kong and Shanghai is expected to raise up to $22 billion, the most ever raised in a single share debut anywhere.

The retail portion of the offering drew orders of more than HK$420 billion ($53.9 billion) in Hong Kong, The Standard newspaper and the Hong Kong Economic Journal said.

More than 1 million people — or one in seven of Hong Kong’s total population — placed those orders, the Journal said.

The keen demand surpassed the record set by Bank of China, the mainland’s No. 2 lender, whose IPO in June drew HK$280 billion in retail orders.

The Hong Kong portion of the IPO is being priced Friday, while the price of the mainland portion will be set Monday. The shares are due to begin trading simultaneously in Hong Kong and Shanghai Oct. 27.

Given the strong interest, the state-owned bank is expected to price its shares at the top end of the range specified in its prospectus. The price range for the Hong Kong portion has been set at HK$2.56-HK$3.07 ($0.33-$0.39), on par with its Shanghai offering, at 2.60 yuan to 3.12 yuan ($0.33-$0.39).

The IPO has also attracted well over $300 billion in orders from institutional investors, the South China Morning Post reported quoting unidentified market sources.

ICBC plans to sell 35.39 billion ”H” shares in Hong Kong — stocks for a mainland Chinese-registered company listed in Hong Kong — and 13 billion ”A” shares in Shanghai.

If priced at the top of the range, the dual IPO will raise about $21.9 billion — exceeding the 1998 IPO by Japanese mobile phone company NTT DoCoMo, which raised $18.4 billion.

Mainland Chinese banks have a long track record of bad debts and lending scandals, but investors have been keen to buy shares, betting that government support will limit risks while allowing them to tap into China’s economic boom.

Like the two other major state banks that have already sold shares in Hong Kong, Bank of China and China Construction Bank, ICBC has restructured and wiped out billions of dollars in bad debts.