The ICBC IPO. All Part of The Plan.

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It is perhaps no surprise that the recent IPO of China’s Industrial and Commercial Bank (ICBC), at US$25 billion (and possibly as much as US$29 billion, if additional options are taken into account) was the largest in the world, ever. After all, this is China, with the fourth biggest economy in the world, supporting the world’s largest population.

The headlines are full of frothy details about investors in Hong Kong and China battling for shares in the bank, and their almost immediate uplift, but the real money has been made by the bank itself, its international investment banking advisors (even at around half the fee levels charged for international deals), and its strategic shareholders – some of whom have made billions on the deal.

Despite all the individual and institutional shareholdings, BusinessWeek notes Moody’s analyst, May Yan as saying that:

    “Given foreign strategic investors’ minority shares and their different level of familiarity with the Chinese operating environment, it is difficult for them to exert significant influence on the corporate governance”.

It will be interesting to see how the bank and its management perform, and how far the foreign interests are allowed to influence things. The ability to prove good corporate governance will also help give confidence to investors in other deals that are expected to follow, according to BusinessWeek, including:

    • China Communication (US$2 billion)
    • China CITIC Bank (US$1 billion)
    • Bank of Beijing (US$1 billion)
    • Guangdong Development Bank (US$1 billion)
    • China Pacific Insurance (US$1 billion – according to The Standard)

The banks among them will join the ranks of those already listed, and will push up still further the US$20 billion of foreign money that had been invested in the sector by February this year.

So, Chinese banks are now the darlings of the international investment community. How quickly things change! Not very many years ago I worked on a UK government-funded project to assist with the development of China’s Asset Management Companies (the AMCs – which took on the huge bad debts that had been built up by the banks). At that time the banking sector was high risk – to say the least – and basic concepts of risk analysis and portfolio management were totally alien. However, reform of the People’s Bank of China (PBOC), the introduction of the China Banking Regulatory Commission (CBRC), and a host of other policy initiatives, paved the way for the successful listings that we are now seeing. There is still significant risk, to be sure, but the balance of opinion seems to have moved towards the opportunity.

Whether or not you view the bank IPOs as an attractive investment, they are a good example of what can happen when the government has A Plan. When in China, underestimate speed of change, and the impact of government policy, at your peril!

See news sources:

    China’s biggest bank soars on listing
    Daily Telegraph – Sydney,New South Wales,Australia
    SHARES in China’s largest bank, the Industrial and Commercial Bank of China, have jumped 9 per cent from its initial public offer price on its listing in …

    The Great China IPO Haul
    BusinessWeek – USA
    Ever since the Great Helmsman Mao Zedong nationalized China’s banks more than 50 years ago, they have served as massive employment agencies, money pots for pet …

    China Pacific targets US$1b share offering
    The Standard – Hong Kong
    China Pacific Insurance (Group), the country’s second-largest general insurer, plans to raise more than US$1 billion (HK$7.8 billion) in a Hong Kong IPO in the …

2 Responses to “The ICBC IPO. All Part of The Plan.”

  1. davidacarnes Says:

    With all the money pouring into Chinese banks despite bad debts and scant experience with unprotected free markets, I am reminded of the overpriced Baidu IPO a while back. It seems very fashionable at the moment to put money into China. Could we be lookiing at the making of a bubble?

  2. Jeremy Gordon Says:

    There has been speculation about a bubble for some time, but on the other hand the government has made big efforts to manage growth and avoid a hard landing. As for teh banks, I think they have are listings “with Chinese charateristics” in that the government cannot afford to let them fail (for many reasons), so they will be protected. In addition, there is clearly a lot of scope for improved efficiency and long-term development.

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