Biggest Bank in China Planning an I.P.O.

September 23, 2006 Biggest Bank in China Planning an I.P.O. By KEITH BRADSHER HONG KONG, Sept. 22 — Share sale documents filed late Friday by the Industrial and Commercial Bank of China confirmed the bank’s plan for what could be the world’s largest initial public offering. Hong Kong’s stock exchange gave permission on Thursday for the bank to proceed with the sale of shares as part of an initial public offering on the Hong Kong and Shanghai exchanges that could raise $19 billion, if fully subscribed. That would exceed the current record holder, an $18.4 billion initial public offering by NTT DoCoMo of Japan in 1998. The bank, China’s biggest, moved ahead with its plans as a strong debut here on Friday for China Merchants Bank showed that investors remain smitten with big Chinese banks despite the banks’ problems. Shares of China Merchants Bank, the country’s sixth-largest, jumped 25 percent on its first day of trading here to close at $1.37 a share, raising $2.4 billion in a heavily oversubscribed initial public offering. Industrial and Commercial confirmed its intention to hold an initial public offering in documents filed with the China Securities Regulatory Commission and the Hong Kong exchange and posted on their Web sites shortly before midnight. Tentatively set for late October, the initial public offering still requires the approval of the Chinese commission, but that is considered virtually certain or else the state-owned bank would not have been allowed to seek the Hong Kong stock market’s permission for the listing. Many experts say that Chinese banks have put the worst of their nonperforming loans behind them. “There is some very significant improvement in some of the banks’ financial profiles,” including Industrial and Commercial, said Ryan Tsang, the director of greater China financial services ratings at Standard & Poor’s. Romeo Dator, the portfolio manager of the $75 million U.S. Global Investors China Region Opportunity Fund in San Antonio, said that he planned to seek an allocation of shares in the offering by Industrial and Commercial because previous offerings of Chinese banks have done well. Bank of China and other Chinese financial institutions now traded here have become large components of indexes of Chinese stocks, so ignoring them is risky, Mr. Dator said. But with higher ratios of price to book value than some American banks, the Chinese banks seldom look like bargains based on their balance sheets alone. “They tend to perform well at first, but we always have questions about the valuation,” Mr. Dator said. “There’s such a hunger for them across the board that you’re almost forced to try to get some.” With $800 billion in assets at the end of last year, and 18,038 domestic branches at the end of June, Industrial and Commercial holds one-sixth of the country’s bank assets. Credit Suisse, Deutsche Bank, Merrill Lynch and the China International Capital Corporation are managing the offering. The Chinese government has taken a series of steps to put big state-owned banks on a firmer financial footing and sell partial stakes in them. The People’s Bank of China, the country’s central bank, transferred $15 billion of the country’s foreign exchange reserves to the Industrial and Commercial Bank last year; a year earlier, the central bank transferred $22.5 billion apiece to the Bank of China and China Construction Bank, and both have since conducted initial public offerings here. China Merchant Bank’s first-day performance on Friday eclipsed the 15 percent rise posted on June 1 in the first day of trading here of the Bank of China’s initial public offering, which raised $9.7 billion. Although Chinese government officials continue to oversee the management of these foreign exchange reserves, the banks have been allowed to count the money as capital and have used it to offset large write-offs of bad loans. But Chinese banks have engaged in a surge of new loans over the last year that have diluted the proportion of nonperforming loans in their portfolios but have also raised questions about whether another large crop of bad loans may appear in the future. The Bank of China offering had been the largest since AT&T Wireless in 2000. While the exact price of the new offering will not be set until much closer to the start of trading, the rough ranges of values being floated here suggest that Goldman Sachs, the Allianz Group of Germany and the American Express Company did well in paying a total of $3.78 billion last winter for newly issued ordinary shares that gave them stakes of 5.75 percent, 2.25 percent and 0.45 percent respectively, in the industrial bank.