China close to approving $30bn injection for ICBC
By Francesco Guerrera in Hong Kong
Published: January 4 2005 02:00 | Last updated: January 4 2005 02:00
China's authorities are close to approving an injection of more than $30bn (£16bn) into Industrial and Commercial Bank of China, the country's largest lender, in a move that will pave the way for an overseas listing worth more than $10bn.
In a sign the state-owned bank is stepping up preparations for an initial public offering, ICBC is expected to invite a small number of investment banks to bid for the advisory mandate for the IPO in the next few weeks.
A recapitalisation and listing of ICBC would be an unprecedented test of Beijing's ability to reform its troubled financial sector. People close to the situation said the plan was expected to receive final approval from Chinese regulators before the end of the month.
However, they warned that the authorities charged with the move, including the country's banking regulator and the State Council, China's cabinet, could still delay their decision.
Approval of the plan, which details measures to transform ICBC into a joint-stock company and overhaul its risk management, information technology and credit systems, is almost certain to be followed by an injection of state funds.
On New Year's Eve in 2003 the Chinese government used $45bn of foreign reserves to recapitalise China Construction Bank and Bank of China, two of the "Big Four" state-owned lenders that are due to list this year.
People close to the latest deal said the size of ICBC's capital injection was still unclear but it would be bigger than its smaller peers and could reach $45bn.
Its IPO in Hong Kong and possibly New York is not likely to take place before 2006, but is set to be larger than CCB's planned $5bn-$10bn offering.
ICBC was unavailable for comment. China holds more than $540bn in foreign reserves, giving its government the financial firepower to inject as much as ICBC needs to clean up its balance sheet.
Because of its size, ICBC suffered more than any other Chinese bank from years of government-directed lending to state-owned enterprises.
At the end of September its non-performing loans ratio stood at 19.46 per cent, or about $91bn. The number, described as "a scary figure for overseas investors" by the official Chinese news agency, is higher than the country's average of about 13 per cent, and well above CCB's and BoC's single-digit ratios.
However, ICBC has pledged to introduce modern accounting systems to comply with the Sarbanes-Oxley Act, the tough rule on corporate governance in the US. |
