HONG KONG: The Kuwait Investment Authority has invested $800 million in Agricultural Bank of China, two sources said on Monday, giving Middle East funds a big slice of AgBank’s likely record $23 billion IPO.
The same sources confirmed a weekend report that the Qatar Investment Authority agreed to invest $2.8 billion in AgBank, a bigger-than-expected sum that gets underwriters closer to their goal of raising around $6 billion through cornerstone investors in the planned Hong Kong offering.
Excluding over-allotment shares, the bank that Mao Zedong founded in 1951 as the rural unit of the central bank hopes to raise around $12 billion through its Hong Kong offering and around $11 billion through a listing in Shanghai.
AgBank and the sovereign funds were unavailable for comment. The sources are directly involved with the deal, but could not be named as the information is not yet public.
Non-Chinese investors cannot take part in China IPOs, but international corporations and funds can buy into AgBank, China’s third-largest lender with $1.4 trillion in assets, through the Hong Kong H-share offering.
That list now includes European banks, Hong Kong tycoons and US agricultural conglomerate Archer Daniels Midland, according to other sources involved in the deal.
The parent company of state-run consumer group China Resources Enterprise Ltd will invest $200 million in AgBank, another source familiar with the matter said on Monday.
"If investors take a long-term investment view, I think AgBank can provide a very attractive return," said Patrick Yiu of CASH Asset Management. Yiu said short-term investors will likely get burned if AgBank prices at a higher-than-expected valuation.
AgBank, run by 53-year-old war hero Xiang Junbo, had hoped to raise $30 billion through its dual-market initial public offering, but China’s share markets have dropped by a fifth, forcing the bank to scale back its fundraising.
Anything above the $21.9 billion raised by Industrial and Commercial Bank of China (ICBC) in 2006 would make it the world’s biggest IPO.
In order to attract a wide variety of investors across Asia, AgBank also plans to launch a public offer without listing (POWL) in Japan, one of the sources said.
"The POWL process allows you to distribute more broadly," the source said, adding this could allow another $1 billion of the Hong Kong offering to be taken up by outside investors.
The IPOs of China Mobile and China Construction Bank also came with a POWL tranche in Japan, attracting both Japanese institutional and retail investors.
Both POWL and cornerstone investors are a key step for state-owned AgBank as it hopes that signing up big name investors ahead of its Shanghai and Hong Kong listings in mid-July will help attract other investors despite weak market sentiment.
Cornerstone investors agree to buy into an IPO before it prices. They are normally barred from selling their shares for 6-12 months, helping build confidence in the offer before it goes to institutional investors.
AgBank boasts nearly 24,000 branches and employs more than 441,000 staff, eclipsing ICBC and CCB, the world’s two biggest banks by market value. It has 320 million customers, more than the population of the United States. –Additional reporting by Maggie Lu Yueyang
