Come this Friday – the 27th October, a lot many taxi-drivers and housewives across Mainland China and Hong Kong would be a happy lot. Well, the retail investors could have been even happier had the Industrial and Commercial Bank of China (ICBC) Initial Public Offer (IPO) been fixed at the middle of its indicated range. And had the issue been allotted to all retail applicants following models of its predecessors (Bank of China Ltd. raised $11.2 billion in IPO in this May, and China Construction Bank Corporation raised $9.2 billion in 2005). ICBC chose economic sense over common satisfaction.

But the huge demand, an almost 30 times over subscription (and in Hong Kong retail category over subscriptions were 76 times, and in China by more than 266 times) now sort of ensures the prices to be in the top of the indicated range, as indicated by sources in ICBC – curtailing magnitude of appreciation on debut from earlier anticipated 15% and more to a realistic level of 10-15% now.

With record subscriptions from both Institutional and retail side, ICBC is likely to price its H-shares in Hong Kong at HK$3.07 and A-shares on the mainland at 3.11 yuan. H-shares are stocks of mainland companies listed in Hong Kong exchange whereas A-shares are priced in Chinese currency and available only to mainlanders (and selected foreign investors). Both the A- shares and the H-shares will be priced finally on Friday, and both H- and A- category shares would start trading on same day – another first time in China’s capital market. That too with its derivatives and warrants in Hong Kong exchange.

And for the same reason, a lot of retail allottees are likely to sell-off on listing. Volatility is expected to be high as history gets created and recorded. How many get any allotment is also another matter of speculation now as the month long craze reaches the crescendo.

However any retail sales on listing are expected to be gobbled up by institutional buyers as their appetite was not met, here it received 23 times over subscriptions.

And another funny thing of the 21st century world is Socialist China creates capitalist history in many fronts through this ICBC IPO. One – that of raising highest capital in IPO till date and placing China as the top country in top-ten list of funds raised through IPOs, that too all the three from China coming from the banking fraternity and all listing in last two years. ICBC now has the option of raising $22 billion from this IPO, more than twice than any raised from Capitalistic USA ($10.6 billion by AT & T Wireless in 2000) and thereby also overtaking NTT DoCoMo in its frenzied telecom days back in 1998 ($18.4 billion).

And there were voices about perils in China’s banking industry not too long ago due to unsustainable Non-Performing Loans (NPLs) coupled with directional state controlled lending norms in an overheated economy.

The bank had earlier given a range of HK$2.56-3.07 for the Hong Kong offerings for its 35.39 billion H-shares, with an option to offer 5.31 billion more shares, and 2.60-3.12 yuan for the mainland share sale for 13 billion A-shares, with an option to add 1.95 billion more here.

Lower range of this price band equals 33 US cents. Finally it’s now offered at 39 US cents/share.

More than $81.5 billion of demand came from retail investors of Mainland China, and Institutional investors chipped in another $16.3 billion. Individuals from Hong Kong ordered $54 billion whereas overseas investors – lately who are on a buying spree in China ordered a phenomenal $345 billion.

Overall subscription to the offer was closed to or even in excess of $500 billion, against offered 14.8 percent of ICBC’s enlarged share capital where only holdings of Ministry of Finance and Central Huijin Investment Co., a state-owned holding company are in double digits (36.2% each post IPO). In all likelihood, this may be the largest subscription of any IPO.

That’s an awesome money – twice the market-cap of world’s largest financial Institute (Citigroup Inc) chased ICBC, and more than the GDP of 164 nations individually, including that of banking heaven Switzerland (which is at $367 billion). At listing and with greenshoe option likely to be exercised, ICBC is expected to rank as the fifth most valuable financial Institute in the world – at more than $135 billions. Its price to Book at listing is expected to be around 2.23, following that of its predecessors in the range of 2.3-2.6.

And ICBC would also be one of the most valuable firm from Asia – headed by Toyota (around $185 billion). ICBC would overtake Samsung, that touched at $100 billion in January 2006. And these are excluding Russian energy giant Gazprom whose market-cap soared to more than $300 billion and ranked third back in May 2006.
ICBC would be closed to another growing star – Google – the darling of the internet world – in terms of market-capitalization.
A little bit more on this giant that’s going public – with an employee base of close to three hundred and sixty thousand, this largest bank of China with its network of 18,000 branches serves 153 million retail customers (that incidentally is more than Russia’s population, and barring only six nations – i.e. host China, India, USA, Indonesia, Brazil and Pakistan no other country has so many citizens) and 2.5 million corporate clients, owns $800 billion in assets and recorded net profit of to $4.13 billion in last financial year.

Expected net profit for current year is $12.5 billion. Non-performing loans (NPL) totaled RMB 154.4 billion, a significant reduction as the bank last year received a $15 billion rescue package from the government that helped it reduce bad loans although the figures are widely regarded as being somewhat higher than officially stated. It has an NPL ratio of 4.69% and a capital adequacy ratio of 9.89%, which would go up with this offer.

Citi, incidentally world’s largest financial institute has a market value of $ 249 billion, and manages an asset base of $1494 billions with price to book value at 2.16. In US, only Citi, Bank of America and J P Morgan Chase has higher market-capitalization than ICBC. And then there is London-based HSBC Holding Plc amongst top five.

Any any China story now remain incomplete with a complementary Indian story. Whole Indian banking industry market-cap stands at close to $70 billions which is almost half of this Chinese giant alone, and nearly same as value as China spent on its three biggest government-owned banks. These three banks received $60 billion in bailouts since 2003 as part of the industry cleanup. India’s largest bank – State Bank of India in turn holds assets of $106 billion, has a market-cap of close to $12 billion. Its price to book value is around 2, whereas couple of Indian financial institutes trade at more than 5 price to book ratios. Unlike China, India’s banking sector is fragmented with 27 private sector banks, 30 private banks and many more foreign banks, regional rural banks and co-operative banks.

India in turn is looking for Chinese size and scale in all its industries barring IT sector – and in banking sector India hopes to create fewer larger entities through mergers and acquisitions of its public sector banks.

But for India, it’s miles to go before it can think of creating a bank of $130 billion+ in market-capitalization. That’s almost one-fifth of entire Indian market-value. All over the world, it’s Chinese goods and all things Chinese are talked about. And in money-matters, Chinese banks seem to be catching up even faster where it matters the most – in creating capitalistic value in socialist China.

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