Chinese bank lines up world's largest IPO

HONG KONG: Industrial & Commercial Bank of China, the nation’s biggest by assets, plans to raise as much as $19.1bn in the world’s largest initial public offering (IPO), four people involved in the sale said.

The Beijing-based ICBC plans to offer 35.4bn shares at HK$2.56 to HK$3.07 apiece, said the people, who declined to be identified before an announcement from the bank. The Beijing- based company also may sell 13bn shares at 2.6 yuan to 3.12 yuan each in Shanghai, they said. The top end of the range is subject to final discussion, the people said.

The IPO probably will exceed the $18.4bn that Japan’s NTT DoCoMo raised in 1998. Chinese banks, including China Merchants Bank and China Construction Bank, have attracted $27.7bn from share sales in the past 15 months. Shares of Shanghai-based Bank of Communications more than doubled since its IPO in June ’05.

“People buy Chinese banks because they’re optimistic about the wider economy, not because they have any individual allure,” said Pauline Dan, who helps manage $1.5bn at Manulife Asset Management in Hong Kong.

The initial price range of ICBC represents between 1.95 times and 2.23 times its ’06 book value, the people said. Bank of Communications, by contrast, trades at 2.32 times its ’06 book value and Construction Bank is trading at 2.49 times.

The government has been pushing banks to tighten lending controls to escape a legacy of corruption that saddled the industry with $262bn of bad debt as of March ’04.

Bad loans represented 4.1% of ICBC’s total in June, down from 4.7% at the end of last year. China Banking Regulatory Commission said the country’s five biggest banks should cut bad loans to less than 5%.

ICBC’s simultaneous offerings in Hong Kong and China will eclipse the $13.7bn that Bank of China raised in two sales in May and July this year. The bank’s stock is scheduled to start trading in Hong Kong and Shanghai on October 27.

The bank last year received a $15bn bailout from the government that helped it reduce bad loans, and this year sold a 10% stake for $3.78bn to a group including Goldman Sachs Group’s GS Capital Partners V fund, Allianz and American Express.

Merrill Lynch, China International Capital, Credit Suisse Group, Deutsche Bank and ICEA Securities are handling the global share offering.

Underwriters for the domestic sale are China International Capital, Citic Securities, Guotai Junan Securities and Shenyin & Wanguo Securities.

ICBC may earn 55.2bn yuan ($6.9bn) in ’06, up 47% from a year earlier, based on international accounting standards, according to analysts estimates from Deutsche Bank.