This may not seem an ideal time for a bank to be raising capital: the government is reining in bank lending as part of its crackdown on real estate speculation; investors worldwide are spooked by the Eurozone debt crisis; bank valuations are at lows; and many banks are seeking to raise capital to bolster inadequate balance sheets. Yet Agricultural Bank of China is going to market in Shanghai and Hong Kong with an initial public offering of 15% of its equity said to raise up to $30 billion. That would make it the world’s largest IPO, topping the $22 billion Industrial & Commercial Bank of China (ICBC) raised in 2006. The securities regulator is due to review the offer plan on June 9, with mid-July said to be the target date for the IPO itself.
Four other big state-owned banks, ICBC, China Construction Bank, Bank of China and Bank of Communications have announced plans to raise $27 billion of new capital by selling shares and bonds this year, now regulators have raised the mandatory minimum capital adequacy ratio to 11.5%. Agricultural Bank, the country’s fourth-largest by assets, is the least profitable of the four biggest banks to go through the state-led restructuring of a couple of years back. It got a 130 billion yuan government cash injection and scratched 816 billion yuan of non-performing loans from its balance sheet in 2008.
The bank says it had a capital adequacy ratio of 10.07% at the end of 2009 and its non-performing loan ratio stood at 2.91%. It also says it increased its profit by 26% to 65 billion yuan last year, and forecasts net income will rise to at least 82.9 billion yuan in 2010. But to raise the sort of sum it is looking for in the current climate, its underwriters are going to have to have some big Chinese institutional investors lined up.