Ag Bank's A-share IPO price range below expectations

14:09, June 29, 2010      

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The Agricultural Bank of China yesterday evening announced that its A-share pricing range for its initial public offering is set at 2.52 to 2.68 yuan, much lower than the market expectation of 2.7 yuan.

The prices correspond to 13.3 to 14.1 times the amount of earnings for 2009, or 13.6 to 14.4 times the earnings if all over-allotment options are exercised.

The pricing range was set based on preliminary inquiries, the consideration on the issuer's fundamentals, the market valuation levels of comparable companies and market environment.

Analysts pointed out that the lower-than-expected IPO pricing implies weaker market sentiment.

The bank plans to issue 22.2 billion A shares and 25.4 billion H shares and allocate IPO underwriters over-allotment options that account for 15 percent of the IPO shares. If all the over-allotment options are exercised, the bank will issue a total of 25.6 billion A shares and 31.5 billion H shares.

Calculated based on the IPO price range, the bank will raise about 56 billion to 59.6 billion yuan from its A-share IPO or 64.4 billion to 68.5 billion yuan including the exercise of over-allotment options. The bank set its H-share IPO price range at 2.88 to 3.48 Hong Kong dollars and will raise around 73.2 billion to 88.4 billion Hong Kong dollars or 90.8 billion to 110 billion Hong Kong dollars including the exercise of over-allotment options. Ag Bank will raise a total of 120 billion to 136.7 billion yuan from its A and H-share IPOs, equivalent to 17.7 billion to 20 billion U.S. dollars.

The amount of IPO financing will reach 21.1 billion to 24.2 billion U.S. dollars if all the over-allotment options are exercised. This would top the previous record of 21.9 billion U.S. dollars set by Industrial and Commercial Bank of China in 2006, making it the world's largest IPO.

Agricultural Bank of China started selecting underwriters on April 7, marking the official start of the IPO process, and gained listing approval from China Securities Regulatory Commission and Hong Kong Exchanges and Clearing, Ltd. on June 9 and 10, respectively.

China Life Insurance, People's Insurance Company of China, China National Cereals, Oils and Foodstuffs Corporation, and other cash-rich companies will be the bank's targets for placement. Furthermore, 11 cornerstone investors such as Qatar Investment Authority and Kuwait Investment Authority are lining up to buy a total of nearly 5.5 billion U.S. dollars' worth of H shares. On April 21, 2010, China's National Council for Social Security Fund invested more than 15 billion yuan in the bank for a nearly 4 percent stake and became the bank's only strategic investor.

According to the prospectus, by the end of 2009, the bank's total assets reached nearly 8.9 trillion yuan, and its net assets exceeded 342.9 billion yuan. In addition, the bank achieved a total of 65 billion yuan of net profits in 2009. The funds raised this time will be used to supplement its cash capital because the bank's capital adequacy ratio was only slightly over 10 percent, lower than the minimum 11 percent for large banks required by the China Banking Regulatory Commission.

By People's Daily Online


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