Merrill, CS, Deutsche win $12 bln China bank IPO http://today.reuters.com/sponsoredby/amex/article.aspx?type=innovationNews&storyID=2006-03-09T093041Z_01_HKG330630_RTRUKOC_0_US-FINANCIAL-CHIN
Thu Mar 9, 2006
By Kennix Chim and Brian Kelleher
HONG KONG (Reuters) - Merrill Lynch <MER.N>, Credit Suisse <CSGN.VX> and Deutsche Bank <DBKGn.DE> are among the winners in a fierce battle for an underwriting role on the $12 billion IPO of Industrial & Commercial Bank of China.
ICBC <ICBC.UL> said on Thursday it had also picked China International Capital Corp, which is 34 percent owned by Morgan Stanley <MS.N>, and its own ICEA Finance Holdings investment banking arm to work on the deal, which could generate more than $300 million in underwriting fees.
Goldman Sachs <GS.N>, which is part of a consortium investing $3.78 billion in ICBC, was considered a frontrunner, but it failed to add the mainland's top lender to its long list of Chinese bank mandates.
ICBC is expected to sell roughly 10 to 15 percent of its equity in a Hong Kong listing that will probably be the last mega Chinese IPO for the foreseeable future.
The IPO, on track to be the world's largest since AT&T Wireless raised $10.6 billion in April 2000, is expected to follow rival Bank of China <BOC.UL>, which aims to raise $8 billion in a Hong Kong listing in the first half of this year.
The path for both deals has been smoothed by last year's $9.2 billion IPO by China Construction Bank <0939.HK>, which was the world's largest in four years.
Construction Bank shares have jumped 49 percent since its October listing and shares of China's Bank of Communications <3328.HK> have soared 81 percent since their June IPO.
"The investors really made a profit on those, Bank of Communications, or CCB," said Kitty Chan, a portfolio manager with RexCapital Asset Management. "If the price-to-book (ratio) is close to 2, something like that, then sure, people will have more interest," she said. "Anything above 2.5 or maybe 2.8, there is a question mark."
HOPES FOR THIS YEAR
ICBC hopes to list by the end of the year but preparatory work and market conditions may push the offering into 2007.
"Technically, the bank is ready to list in September, but it will depend on other factors," a banking source said.
Agricultural Bank of China <ABC.UL>, the last of the Big Four state-run lenders, is viewed as a much longer-term listing candidate since it is the weakest among them, with some $90 billion in bad loans.
Beijing has bailed out its banks and encouraged offshore stock listings to strengthen a sector weighed down by a mountain of bad loans.
The government in April 2005 said it was injecting $15 billion into ICBC to help clean its bad loan-riddled balance sheet. The bank received further support when Goldman, Germany's Allianz AG <ALVG.DE> and American Express <AXP.N> pledged their investment in January.
Goldman's close ties to ICBC and its long history as a top Chinese deal maker left it well positioned for an underwriting role, but many market watchers said the firm faced conflict of issues as it is already working on the Bank of China IPO with Switzerland's UBS <UBSN.VX> and China's BOC International.
Goldman is putting up $2.58 billion for a 7 percent stake in ICBC through its principal investment arm, while Allianz is paying $1 billion for a 2.5 percent stake and American Express is investing about $200 million.
Foreign investors such as Goldman, HSBC, Citigroup Inc. <C.N> and others are flocking to China's flawed but potentially lucrative banking sector, flush with over $1.7 trillion in personal savings and a credit culture that is only emerging.
ICBC has around 18,000 branches and offices serving more than 100 million retail customers and 4 million corporate clients.
The bank's operating profit jumped 21 percent to $11.2 billion in 2005, and its non-performing loan ratio fell to 4.43 percent from 4.6 percent at the end of September.
To capture the burgeoning ranks of wealthy consumers being created by China's economic boom, ICBC is focusing more on businesses like credit cards and its interest income fell to 53 percent of 2005 revenues from 70 percent in 2000.
(Additional reporting by Daisy Ku and Jeffrey Hodgson)