ABC's float loses some of its glitter

SHANGHAI - Agricultural Bank of China Ltd's (ABC) valuation discount to its closest rivals has halved in seven trading days until Monday, making the world's biggest initial public offering in almost four years less appealing to investors.

Shares in the Hong Kong part of Agricultural Bank's IPO are valued at an average 5.3 percent less than its three biggest competitors as measured by book value, based on the top end of the IPO price range and data compiled by Bloomberg. When the bank priced the offering on June 24, the gap was 10.5 percent.

The narrowing discount, the result of a drop in shares of publicly traded rivals such as Industrial & Commercial Bank of China Ltd (ICBC), may make it harder for Chairman Xiang Junbo to raise the maximum $20.1 billion he's seeking in Hong Kong and Shanghai.

It may also dim the prospect of eclipsing ICBC's record $21.9 billion IPO in October 2006, even when taking into account an option to boost the sale by 15 percent.

"We're not in an environment where people are going to be blas about valuations, and as things have sold off, it's put some pressure on them," said William Fries, a fund manager at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees about $57 billion.

Beijing-based Agricultural Bank expects to set a final IPO price on July 7. The company is also selling stock in Shanghai.

Valuations

ICBC exercised an option to expand its IPO after listing to meet excess demand. Without the overallotment, the sale would have raised $19 billion. Agricultural Bank can increase its IPO to as much as $23.1 billion.

Agricultural Bank is offering 25.4 billion shares in Hong Kong at HK$2.88 ($0.29) to HK$3.48 apiece, representing 1.55 to 1.79 times 2010 book value as estimated by the IPO's underwriters.

Hong Kong-traded shares of ICBC, Construction Bank Corp and Bank of China Ltd have lost an average 5 percent since June 24, trimming valuations to 1.89 times estimated book value, data compiled by Bloomberg show.

Agricultural Bank may be able to sell the Hong Kong shares for at least HK$3.3, or 1.7 times forecast book value, according to Jonathan Siu, an analyst at Core Pacific-Yamaichi International (HK) Ltd. That price would allow the bank to raise as much as $19.5 billion before the overallotment.

Rivals' fundraising

Xiang is taking his bank public after almost 50 companies worldwide shelved IPOs in the past three months amid concern that the end of government stimulus and widening budget gaps from Greece to Spain will curb the global economic recovery, accordign to Bloomberg data.

The Hang Seng China Enterprises Index, which includes shares of ICBC, China Construction Bank and Bank of China, has fallen for eight straight days, the longest losing streak in a decade.

Domestic rivals are also competing for investors' cash. Bank of China said on July 2, it plans to raise as much as 60 billion yuan ($8.9 billion) in a rights offer to replenish capital.

China Construction Bank last month won shareholder approval to raise as much as 75 billion yuan in a rights offer.

"With Bank of China's share placement and then China Construction Bank's, AgriBank should be willing to leave some profit on the table," said Claude Tiramani, who manages $50 million at Lutetia Capital in Paris. "So I wouldn't be expecting the shares to be priced at the top end of the range."

Bloomberg News

(China Daily 07/06/2010 page16)