Finally, AgBank IPO Meetings Start

By ALISON TUDOR
HONG KONG—Agricultural Bank of China Ltd. kicked off its potentially record-breaking share offering Thursday by pitching its credentials as a proxy for China's growth.

A lunchtime meeting with investors in the basement of the swanky Island Shangri-La Hotel was packed with fund managers as journalists jostled at the entrance for a glimpse of AgBank's management team.
Many people found standing-room only as they listened to AgBank's management talk about their company, emphasizing the rapid urbanization in the western part of China. According to AgBank's 2008 annual report, 30% of the bank's 24,000 branches are in western China, one of the country's poorest regions. "The future is really very bright. There are so many people moving into the cities," one executive said.

Analysts have said AgBank, as it is known, could benefit from the government's efforts to equalize the wealthy coastal regions and the poorer interior, to avoid political instability.
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Management said AgBank has the lowest overseas exposure among its peers and that only about 3.6% of loans are to exporters, so if China allows the yuan to appreciate, it shouldn't have a significant effect on the bank's loan book.

Last weekend China announced it would allow the yuan to fluctuate in value, raising some concerns that a rising currency could hurt exporters because their foreign-currency earnings would translate into fewer yuan.

AgBank set the share-price range for its listing in Hong Kong late Wednesday at 2.88 to 3.48 Hong Kong dollars (about 37 U.S. cents to 45 cents), according to people familiar with the deal. The range for its dual listing in Shanghai hasn't been set. The Hong Kong portion could raise as much as US$13.08 billion, if the overallotment to meet strong demand is exercised.

The Hong Kong shares have been valued at 1.55 to 1.79 times 2010 book value, the people said. That is on par with its peer Bank of China Ltd. and at a slight discount to China Construction Bank Corp. and Industrial & Commercial Bank of China Ltd.

China's third-largest bank could raise as much as US$24.5 billion from investors, if pricing in Shanghai is comparable to Hong Kong and overallotment options are fully used in the event of strong demand. To grab the mantle of the world's biggest IPO, AgBank would have to raise more than the $21.9 billion fetched by ICBC from its 2006 stock offering.

So far, investors' reaction has been mixed, with overseas investors slightly more inclined to buy than locals. Shanghai-based investors have voiced concerns about a slowdown in China's economic growth and the quality of AgBank's loan book.

"People are also worried about asset quality because in the last year the government has borrowed so much from banks, and local governments may not be able to pay all the loans back," said Jeremiah Fung, a fund manager at HSBC Holdings PLC's China asset-management joint venture based in Shanghai.

Mr. Fung, who oversees about $100 million across two mutual funds targeted at domestic Chinese investors, said he thought AgBank's valuation offered little potential upside over the short to medium term once the shares are listed.

AgBank is the last of China's four big state banks to go public and many foreign investors see this as a rare opportunity to get exposure to the fast-growing economy.

Julian Mayo, who helps manage $3 billion at Charlemagne Capital in London, said he thinks the government's gradual cooling of the economy was mostly reflected in share prices. In the future, policy may become looser as China strives to avoid overly stilting growth, he said.

"The Chinese will take the foot off the brake pedal a bit. The recent outperformance of the major Chinese banks' shares signals we are returning to more normalized policy," he said.

Mr. Mayo added that, for him, the AgBank IPO's round of meetings with prospective investors provided more data on the Chinese banking sector for investors to analyze, which he thinks will highlight the attraction of Bank of China shares. AgBank shares are slated to start trading mid-July.
—Ellen Sheng contributed to this article.