Asia-Pacific Equity Issue
Too big to fail: The US$22.1bn A/H initial public offering of Agricultural Bank of China came to market with ambitious targets and amid treacherous conditions, but that did not stop China’s third-largest bank from closing the record deal. The world’s largest ever IPO is IFR’s Global IPO and Asia-Pacific Equity Issue of the Year.
Having waited on the sidelines as three of China’s big four lenders went public in 2005 and 2006, a reformed Agricultural Bank of China finally set the ball rolling on its own listing in April 2010.
The deal may have been long expected, but that meant the process was under intense scrutiny from the start. Politicians, bankers and the wider equity markets could not afford for the deal to fail.
The aggressive mid-July listing deadline was therefore a surprise, giving bankers less than four months to complete the transaction from pitching to listing – a rushed timetable that seemed impossible for what looked likely to be the largest IPO on record. However, ABC succeeded – and did so in style against an unfavourable market backdrop.
At the time the deal launched, US equity markets had fallen 15% in just two months. Investor sentiment had been severely dented by plunging European sovereign debt markets, which forced the cancellation of a host of IPOs across the world.
Even the burgeoning Chinese equity market felt the turmoil, with the A-share index having just posted its biggest weekly decline in 16 months at the time of the deal. Alarm bells were also ringing in the Chinese banking sector after a burst of bank lending in 2009 had sparked serious concerns over rising non-performing loan ratios.
But ABC’s flotation helped turn that market sentiment around.
To get the deal done, ABC was looking to sell the story that its rural focus meant it had higher growth potential than its listed peers. The lender’s target was to sell its shares at a valuation that offered a premium over Bank of China, seen by investors as the least attractive of the big four because of its foreign exchange exposure.
In order to increase bargaining power with global funds, ABC and the deal’s arrangers adopted a smart strategy by drawing a large number of cornerstone investors into the float. Eleven investors took up shares worth a total of US$5.45bn, or 52% of the H-share offering. They were Qatar Investment Authority, Kuwait Investment Authority, Standard Chartered Bank, Rabobank, Seven Group, Temasek Holdings, China Resources, China Travel Service, Archer-Daniels Midland, Cheung Kong Holdings and United Overseas Bank.
The Chinese lender applied the same strategy on its A-share offering, with 27 cornerstone investors taking up 40% of the float. The proportion of cornerstone participation in each tranche was the highest ever in their respective markets.
It worked. The international book of the lender’s float was covered within the first hour of bookbuilding on the back of strong anchor orders.
In the end, the A-share offering raised Rmb59.6bn (US$8.79bn) at the top of the marketed range of Rmb2.52–Rmb2.68, while the HK$81.3bn (US$10.45bn) H-share offering was priced at HK$3.20 per share, around the middle of the HK$2.88–$3.48 target range.
The deal valued the lender’s A-shares at 1.59 times 2010 book value post-shoe, while the H-shares came at 1.65 times book – representing a premium of 8.1% over where Bank of China was trading at that time. At that level, however, ABC also left something on the table to ensure the stock would trade well after listing.
The H-shares ended their first trading day on July 16 up 2.19% at HK$3.27 – outperforming the A-shares, which had crept up 0.75% on their debut a day earlier. A decent aftermarket performance allowed the bookrunners to exercise the greenshoes on both tranches lifting the size of the deal to US$22.1bn, marginally surpassing the previous record set by the A/H IPO of the ICBC which raised US$21.9bn in 2006, and cementing its place in history as the world’s largest ever IPO.
Not including the cornerstone tranche, the institutional portion of ABC’s Hong Kong IPO was just over 10 times covered with orders worth about US$50bn from more than 500 investors. The retail tranche of the H-share float was five times covered. For the A-share tranche, the retail offer was 15 times subscribed and the institutional book 14 times. The two A-share tranches soaked up a combined Rmb480.3bn in subscriptions.
ABC International, CICC, Deutsche, Goldman Sachs, JP Morgan, Macquarie and Morgan Stanley led ABC’s Hong Kong listing. CICC, CITIC Securities, Galaxy Securities and Guotai Junan Securities arranged the Shanghai sale.
Fiona Lau
