The Agricultural Bank of China, one of China's four largest banks went public in the week of July 5, 2010. The bank's shares will be listed in the Shanghai Stock Exchange, and Hong Kong Stock Exchange later in July, and is the last of the four banks to go public. The amount of money to be raised by the Initial Public Offering (IPO) is believed to be close to the largest in history to date, and has implications for the Chinese economy and banking industry.
• The IPO's will add needed capitalization to the bank
Whether or not the world's largest IPO will indeed be the Agricultural bank of China (ABC.UL) depends on how many shares are issued by the bank. On July 7, 2010, CNN Money reported the Chinese Agricultural Bank had already sold $19.2 billion USD worth of shares in a combined Hong Kong and Shanghai IPO.(2)
Unless the Agricultural Bank of China exercises the option to sell additional shares reserved for overflow demand, Reuters reports the IPO will not exceed the 2006 record for the World's largest IPO held by the Commercial Bank of China at $21.9 billion. (4)
If the Chinese Agricultural Bank does use all its available share offering, it will raise $22 .2 billion according to the July 6, Reuters report. This is only $300 million more than the Commercial Bank of China's IPO.(4)
• A changing economy and banking industry
Apart the size of the Chinese Agricultural Bank IPO, what the IPO of 'AgriBank' means is necessary fund raising according to a Bloomberg interview with Andy Mantel of Pacific Sun Investment Management Ltd. Moreover, Mantel states the bank doesn't just want to go public because it wants to, but because it has to raise money to finance its operations.(1) This is apart from the actual demand for shares of the Agricultural Bank of China.
If the Chinese economy is recalibrating itself to increase a consumer based market, then financing this growing economy implies more bank loans which requires more banking liquidity. The IPO of the Agricultural Bank of China plays a role in the capitalization necessary for this type of lending. Also, Andy Mantel states AgriBank and other major Chinese banks have billions of existing loans that could go into default.(1)
Once the Chinese Agricultural Bank hits the Hong Kong and Shanghai stock exchanges in mid July, prices of AgriBank's shares may decline.(4) Bloomberg has reported this has already happened with the three other major Chinese banks; ICBC, Construction Bank, and Bank of China are down an average of 9.32% for 2010, as of July. (1) If this trend continues, and depending on the lending standards held by Chinese banks, the corporations could be increasing market capitalization to finance defaulting debt in addition to a growing economy.
The Agricultural Bank of China
Image source: 'Hwangxiheng'; CC BY-SA 3.0
• The IPO's will add needed capitalization to the bank
Whether or not the world's largest IPO will indeed be the Agricultural bank of China (ABC.UL) depends on how many shares are issued by the bank. On July 7, 2010, CNN Money reported the Chinese Agricultural Bank had already sold $19.2 billion USD worth of shares in a combined Hong Kong and Shanghai IPO.(2)
Unless the Agricultural Bank of China exercises the option to sell additional shares reserved for overflow demand, Reuters reports the IPO will not exceed the 2006 record for the World's largest IPO held by the Commercial Bank of China at $21.9 billion. (4)
If the Chinese Agricultural Bank does use all its available share offering, it will raise $22 .2 billion according to the July 6, Reuters report. This is only $300 million more than the Commercial Bank of China's IPO.(4)
• A changing economy and banking industry
Apart the size of the Chinese Agricultural Bank IPO, what the IPO of 'AgriBank' means is necessary fund raising according to a Bloomberg interview with Andy Mantel of Pacific Sun Investment Management Ltd. Moreover, Mantel states the bank doesn't just want to go public because it wants to, but because it has to raise money to finance its operations.(1) This is apart from the actual demand for shares of the Agricultural Bank of China.
If the Chinese economy is recalibrating itself to increase a consumer based market, then financing this growing economy implies more bank loans which requires more banking liquidity. The IPO of the Agricultural Bank of China plays a role in the capitalization necessary for this type of lending. Also, Andy Mantel states AgriBank and other major Chinese banks have billions of existing loans that could go into default.(1)
Once the Chinese Agricultural Bank hits the Hong Kong and Shanghai stock exchanges in mid July, prices of AgriBank's shares may decline.(4) Bloomberg has reported this has already happened with the three other major Chinese banks; ICBC, Construction Bank, and Bank of China are down an average of 9.32% for 2010, as of July. (1) If this trend continues, and depending on the lending standards held by Chinese banks, the corporations could be increasing market capitalization to finance defaulting debt in addition to a growing economy.
Sources:
1. http://bit.ly/9yXYsC (Andy Mantel Interview)
2. http://bit.ly/9QyLB1 (CNN Money)
3. http://bit.ly/b5UZMR (Bloomberg)
4. http://bit.ly/aoUyDP (Reuters)
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