BEIJING - The securities regulator on Wednesday gave the green light to Agricultural Bank of China's (ABC) plans for an initial public offering in Shanghai and Hong Kong.

Analysts, however, feel that the bank is now more likely to raise only around 120 billion yuan ($17.6 billion) and not 200 billion yuan as indicated earlier, as the offer price would be less than 2.5 yuan (36 US cents) due to weak market sentiment.

The green light from China Securities Regulatory Commission (CSRC) has dispelled all uncertainties about the float amid the recent market turmoil. Market experts had earlier suggested that the lender may possibly delay its float to a more opportune time .

Analysts, who have examined the preliminary prospectus that ABC submitted to the securities regulator last Friday, said the bank may raise around 120 billion yuan from its dual listing in Shanghai and Hong Kong, slated for mid-July.

Earlier market expectations were that the bank, the country's third-largest by assets, could raise up to 200 billion yuan, and eclipse the record of nearly 150 billion yuan set by Industrial and Commercial Bank of China (ICBC) during its float in 2006.

Analysts, however, said ABC's valuation is comparable to that of Bank of China (BOC), the country's fourth-largest lender by assets. BOC shares were traded at 3.63 yuan, or around 1.69 times its book value at the close of Shanghai trading on Wednesday, with a total market capitalization of around 920 billion yuan.

Given the two bank's profitability last year and the current dull market sentiment, the ABC shares may end up being priced at around 2.4 yuan per share, an analyst who declined to be identified told China Daily. BOC made a profit of 80.8 billion yuan in 2009, while ABC's net profit was 65 billion yuan in the same period.

The bank said in the prospectus that it planned to sell 47.6 billion in new shares, or 15 percent of its enlarged capital base, in a dual listing in Shanghai and Hong Kong. If the over allotment options in the two cities are fully exercised, it could issue up to 56.3 billion shares, accounting for nearly 17 percent of its total shares.

An earlier report by the 21st Century Business Herald said ABC was set to price its shares at between 2.5 and 2.6 yuan.

However, sources close to the deal indicated that with the bank ready to press ahead with its IPO amid turbulent market conditions, it is inevitable that some concessions will have to be made on the offer price to ensure more investor participation.

The Shanghai Composite Index has fallen by more than 20 percent since mid-April after the country adopted a series of austerity measures to cool the economy, while the Hang Seng Index has dropped by some 12 percent in the same period.

Investors are also apprehensive about ABC's asset quality and future profitability as its fundamentals are weaker than other State-run peers.

"There are many variables at stake that could affect the bank's profitability, such as the soft asset quality and vague prospects of the rural lending unit," said Qiu Zhicheng, an analyst at Guosen Securities.

The Hong Kong Stock Exchange is set to review the Hong Kong part of the bank's dual listing on Thursday, and the price range for its IPO is likely to be fixed after roadshows.

China Daily

(China Daily 06/10/2010 page13)