The Hong Kong portion of Agricultural Bank of China Ltd.'s initial public offering has now been priced at $0.41 a share while the Shanghai offering was priced at $0.39 a share, which is considered the high range of the price spectrum.
Worlds Biggest IPO: The Elephant in the Room Emerges
"The deal could become the largest stock offering in history, even though it has raised substantially less than the $30 billion originally expected," Trippon noted. He added, "The offering was 20 times oversubscribed and the sheer size of the deal has drained liquidity from Chinese markets, making the slump on the Shanghai Stock Exchange worse than valuations suggest it should have been."
"Now we are seeing the flip side of the coin," Trippon explained. "The fact that the bank's IPO was oversubscribed and sold at the high end is a powerful signal of optimism about China." Agricultural Bank of China, like all of China's major banks, received a major injection of capital and relief from its non-performing loans as it prepared to go public.
"Agricultural Bank had been in the worst condition of any major Chinese bank because it had acted as an arm of the government, making mandated loans to support poor rural areas," Trippon pointed out. "The fact that this massive IPO could be so popular suggests much more investor confidence in the Chinese banking system than we've seen among the gloom-mongers in the business media."
History-Making Chinese Stock Market Tsunami Sparks Investor Enthusiasm
Trippon noted that, "Many other listed banks in China rose after AgBank received such an enthusiastic welcome." Latin American stocks also shot up after the IPO pricing. "China is a huge consumer of resources from countries like Brazil," Trippon said. "The gains in Latin American indexes shows that there is a lot of optimism that China's economy has the strength to drive global growth."
Although it serves poorer rural regions, the bank is showing powerful profit growth, Trippon added. "The bank boosted its profitability by more than 25 percent to $9.5 billion last year. It forecasts net income will rise to at least $12.13 billion in 2010."
Agricultural Bank had an army of 320 million customers in China at the end of 2009. It blankets the nation's rural regions with more than 23,000 outlets. "There's a lot of room for growth there," Trippon concluded.
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