An Agricultural Bank of China branch in Beijing.BOBBY YIP
When the Chinese government decided to begin taking its state-owned banks public nearly a decade ago - a move that would establish a new hierarchy among the world's largest banks - it held one of them back.
Agricultural Bank of China was a different breed of financial institution than its three siblings. Founded in 1951 by Mao Zedong, AgBank's mandate was to cater to rural villages as well as the big cities. By ensuring farmers could get loans, it was intended to be a social tool as much as a bank, helping to manage the gap between rich and poor.
But the last major bank in China to go public has now become the basis for the richest initial public offering on record, a sign of the world's voracious appetite to invest in the country's rapid and seemingly unrelenting growth.
Despite concerns about a possible property slump in China, investors anxious to use the bank as a proxy for future growth in the Chinese economy helped push AgBank's IPO on Tuesday to $22.1-billion (U.S.), when adding in over-allotment shares. The offering was hugely oversubscribed as eager investors rushed to get in.
Until now, Industrial Commercial Bank of China (ICBC) held the record for the largest IPO in history, after going public in 2006 for $21.97-billion. Next on the list, at $19.65-billion, is Visa Inc.'s 2008 IPO.
Expectations for the AgBank IPO have mirrored the debate playing out over China's economy. Early proclamations figured the bank could fetch as much as $30-billion. But concerns about the impact of an overheated property market, particularly in China's largest cities, dampened those hopes.
Still, demand from institutional investors rebounded enough to install AgBank as the new high-water mark for IPOs. Chinese banks now account for three of the world's 10 biggest IPOs.
The chairman of ICBC, who was in Toronto on Tuesday to announce the Canadian expansion of the bank, said the country's goliath banking IPOs have been fuelled by investors' desire for ways to take part in China's rapid growth.
"I think the world has their eyes on emerging markets, including China," ICBC chairman Jainqing Jiang said in an interview. "Whether it is correct to have a proxy for the Chinese growth rate by investing in Chinese financial institutions, I think different people hold different views. ... I think making China-related investments, or investing in China so as to see the benefits of the high growth rate in China and other emerging markets, is a very right comment."
The offering values AgBank at about $150-billion, putting it fourth on the list of the world's largest banks by market capitalization. ICBC heads up that list at $209-billion, followed by China Construction Bank and HSBC.
Despite efforts by the Chinese government to cool the overheated property market, the sector may be on the verge of tumbling, which would send shudders through the country's banks, according to Kenneth Rogoff, a professor of economics at Harvard University,
"You're starting to see that collapse in property and it's going to hit the banking system," Mr. Rogoff, a former chief economist with the International Monetary Fund, said during an interview with Bloomberg Television in Hong Kong. "At the speed [China's economy]is growing, it's going to have bumps."
In Toronto, Mr. Jiang said he didn't put much stock in such dire predictions about China.
"If we look back into the history, probably 15 to 20 years back, you will find that there were so many people that were trying to make predictions about China. However, later developments turned out to prove they have been making wrong predictions," he said.
"So our response to the predictions is we don't spend a lot of words. We wait for a few years and compare the fact to the predictions."
Grant Robertson