Chief Executive Donald Tsang (center) links hands with Xiang Junbo (left), chairman of Agricultural Bank of China, and Ronald Arculli, chairman of the Hong Kong Stock Exchange (HKEx), at the HKEx Friday to celebrate the mainland bank's Hong Kong trading debut. Edmond Tang / China Daily

Share price gains just 2.2%, but not expected to fall below offering

Agricultural Bank of China (ABC), the last of the Big Four state-owned banks on the mainland that have gone public, failed to meet expectations in its Hong Kong debut Friday amid lukewarm market sentiment and uncertainty about the rural lender's fundamentals.

Shares of the nation's largest lender by number of customers closed at HK$3.27, inching up 2.2 percent from the IPO price of HK$3.20, the smallest first-day gain among major rivals.

The city's benchmark Hang Seng Index ended down slightly by 0.03 percent, or 5.46 points, at 20,250.16.

"ABC's lackluster debut foiled expectations that the bank's whopping initial public offering would sweep away the recent gloominess of the market," Paul Lee, an analyst at Taifook Securities told China Daily.

Analysts and fund managers surveyed by Bloomberg predicted a first-day gain of 6 percent in Shanghai and 5 percent in Hong Kong. The bank ended 0.7 percent higher at 2.70 yuan from the IPO price of 2.68 yuan in its Shanghai debut Thursday, and fell to 2.69 yuan Friday.

"If the bank had issued stocks at HK$3.0 per share, a valuation of 1.4 times its book value, the market should have responded more positively," said Alvin Chung from Prudential Brokerage. The IPO price of HK$3.20 represents 1.7 times book value.

Chung said trading in the shares surged tremendously when the stock price inched up to HK$3.30, a price level at which investors broke even after deducting various fees and costs. He said it showed that investors were bullish about the short-term prospect for the lender. Turnover in the bank's shares totaled HK$10.47 billion Friday, about 17 percent of the market's total turnover of HK$61.32 billion.

"Since Hong Kong investors have more choices nowadays as several big mainland banks have listed in the city, they will compare their profitability and make their decisions accordingly," said Chung.

Chung said the government-mandated lending spree last year amid a slumping economy, which has put pressure on the capital ratios of mainland banks, has also triggered concerns among investors that ABC, whose main borrower group is from rural areas, will face more bad loans in the future than other lenders.

However, Taifook's Lee is optimistic about ABC's future performance and believes that its IPO price is reasonable.

ABC's valuation of 1.7 times book value in its Hong Kong IPO is relatively low, compared with the 2.2 times for Industrial and Commercial Bank of China, the 2.1 times for China Construction Bank, and the 1.6 times for Bank of China - three of the mainland's biggest lenders that went public successively between 2005 and 2006.

"I believe ABC's Hong Kong-listed shares possess upside potential in the long run, although the upside room may not be as large as that for the other three big mainland lenders," said Lee, adding that the government policies and the bank's A-share performance will affect the H-shares tremendously in the future.

Neither Taifook's Lee nor Prudential's Chung expects the lender's Hong Kong-listed shares will sag below the IPO price.

ABC raised around $19.2 billion in its dual listing in Shanghai and Hong Kong, the largest IPO so far this year. It has given underwriters the authority to expand the sale by as much as 15 percent to $22.1 billion.

China Daily

(HK Edition 07/17/2010 page3)