Agricultura bank

Agricultural Bank's IPO
Agricultural revolution
China has now transformed the appearance of its big banks, leaving the vexing issue of substance
Jul 8th 2010 | Hong kong

THE $19.2 billion raised by Agricultural Bank of China’s initial public offering (IPO), which was priced on July 6th and 7th, does not simply mark one of the world’s largest-ever stockmarket listings (the biggest, if thebank fully exercises a right to issue additional shares). It also ends a decade-long process to transform China’s huge financial institutions from wards of the state to banks that resemble publicly listed firms in the rich world.
The deal attracted more than the usual amount of attention—in part because of ongoing palpitations in global markets, in part because Chinese share prices in particularhave collapsed in recent months, and in part because the listing coincides with fierce debate about the health of China’s banking system. Agricultural Bank itself is notable for both its gargantuan size (320m customers) and its giant past loan losses. Optimists see it as a superb macro play on China, pessimists as a Chinese version of Fannie Mae and Freddie Mac, America’s nominally private, anddeeply flawed, housing-finance firms.
Pricing was a matter of guesswork until the last moment. Outside China, big investors seemed anxious to buy in. “Cornerstone” investors included sovereign-wealth funds (Qatar and Kuwait), banks (Standard Chartered, Rabobank, Singapore’s United Overseas Bank), a global agricultural giant, Archer Daniels Midland, and the now usual smattering of tycoons (HongKong’s Li Ka-shing and Australia’s Kerry Stokes). Inside China, internet polls suggested retail investors were less keen. These differing perspectives may explain a rare outcome for dual-listed shares: the bank’s stock was valued more highly (by around 5%) in Hong Kong than Shanghai.
The deal marks the end of a reform process launched by Zhu Rongji, the then prime minister, in 2002. It involvedmultiple rounds of bad-debt scrubbing, internal reorganisations and, finally, public listings. A series of spectacularly large public offerings began in June 2005 when the Bank of Communications, once the country’s dominant industrial bank but now just outside the dominant big four, raised $2 billion in Hong Kong. That deal was followed in short order by China Construction Bank, raising $8 billion inOctober of that year; Bank of China, with a $10 billion capital-raising in June 2006; and ICBC, whose $22 billion joint listing in Shanghai and Hong Kong in the autumn of 2006 was the previous biggest-ever.

Global league tables have been transformed by the listings (see chart). In theory, Chinese banks are now the world’s dominant institutions, with tons of room to grow at home and the heftto buy almost any financial firm. The future of finance could, in short, be China’s. But there is a lot of work to do before that happens.
The next phase of reform has two components. The first is to clean up and list many of the hundred or so other financial institutions that remain in government hands, and bring some sort of order to the thousands of rural co-operatives quietly operating outsideof the government’s direct control. That will not be easy. Many unlisted outfits are run by local municipalities that derive substantial benefits from them, either directly or through politically directed loans. They will not give up control without a fight.
The second is to enforce genuine commercial discipline and transparency. Mr Zhu believed that public offerings and foreign investors wouldput the banks under greater scrutiny, distance them from bureaucratic control and be a first step towards making them more efficient. But any pretence to true independence evaporated last year when, as part of the government’s stimulus plan, bank lending surged despite the global slump and far weaker overseas demand for Chinese products. Chinese bankers argue that the government gave “guidance”...