Strong trading debut seen for ICBC's record IPO
Wed Oct 25, 2006 11:15pm ET
By Kennix Chim and Lu Jianxin
HONG KONG/SHANGHAI, Oct 26 (Reuters) - Shares in Industrial & Commercial Bank of China, which raised $19 billion in the world's largest stock sale, are set to rise as much as 20 percent in their Hong Kong debut on Friday as investors who failed to secure enough IPO shares crowd into the secondary market.
The lender, making the first simultaneous Hong Kong and mainland China listing, is expected to see its Shanghai shares rise by a more modest 10 percent as local shares in rivals Bank of China (3988.HK: Quote, Profile, Research) (601988.SS: Quote, Profile, Research) and China Merchants Bank (3968.HK: Quote, Profile, Research) (600036.SS: Quote, Profile, Research) have traded below their Hong Kong counterparts.
The stock sale was the most popular in Hong Kong history, and unmet demand for shares, combined with a market trading at six-year highs and an offering priced at a discount to peers, should lift ICBC shares by between 15 percent and 20 percent on their first day in Hong Kong, market watchers said.
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 (9437.T: Quote, NEWS, Research), which raised $18.4 billion in 1998, as the world's largest share sale.An overallotment option is expected to lift ICBC's deal size to $21.9 billion.
"As demand for the offering was strong, many institutional investors plan to buy shares in the market after they only received a small percentage of the IPO shares they sought," said Steven Leung, director of institutional sales at UOB-Kay Hian in Hong Kong.
ICBC [ICBC.UL] (1398.HK: Quote, Profile, Research) priced its IPO at the top of an indicated range -- HK$3.07 in Hong Kong and the equivalent 3.12 yuan in mainland China -- after attracting demand of about US$400 billion for the Hong Kong portion of its deal and 780.7 billion yuan (US$99 billion) for its domestic deal.
Rivals China Construction Bank (0939.HK: Quote, Profile, Research) and Bank of China saw their shares end flat and up by 15.3 percent, respectively, in their Hong Kong debuts. Construction Bank now trades 53 percent above its IPO price and Bank of China is up 15 percent.
ECONOMIC PROXY
Investors have clamoured for shares of Chinese banks as a proxy to take advantage of the country's 10 percent-plus economic growth and a consumer lending market in its early stages. That has helped offset concerns about credit quality and lending practices at Chinese banks.
"ICBC's warrants and options are available in the first trading day, with the strong liquidity in the Hong Kong stock market, which will boost its H-shares performance," said Ben Kwong, chief operating officer at KGI Asia.
ICBC's domestic debut is expected to be less robust.
"Despite strong demand for ICBC's A-shares, the potential for a rise of more than 10 percent now appears to be limited because Bank of China's A-shares have persistently traded below their Hong Kong peers -- even right before ICBC's listing," said Zhou Lin, analyst at Huatai Securities.
"This will have a negative psychological impact on ICBC's Shanghai debut," he added.
Hong Kong Chief Executive Donald Tsang and the chairman of ICBC, Jiang Jianqing, will attend ICBC's Hong Kong listing ceremony. Its Hong Kong shares begin trading at 10 a.m. ((0200 GMT)) on Friday, while Shanghai opens 30 minutes earlier.
KGI's Kwong expected Hong Kong shares in ICBC would rise at least 15 to 20 percent, higher than the A-share performance, because the Hong Kong market is more liquid, but he said eventually the gap would narrow.
The pricing values ICBC at $129 billion, ranking it seventh among global banks, ahead of Wells Fargo (WFC.N: Quote, Profile, Research) and behind UBS AG (UBSN.VX: Quote, Profile, Research).
The issue price represents 2.23 times ICBC's 2006 book value, less than the 2.64 times book valuation for China Construction Bank and the 2.38 times book for Bank of China. Bank of Communications (3328.HK: Quote, Profile, Research), China's number-five lender, trades at about 3.03 times 2006 book value, while China Merchants Bank is valued at 3.41 times book. (US$=7.8924 yuan)
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