State-owned Agricultural Bank of China Ltd. had a weak stock market debut Thursday, gaining just 1 percent amid profitability concerns after an initial public offering that raised up to $22.1 billion.
The bank missed out on the double-digit first day bounce that other major Chinese banks have enjoyed after IPOs.
The IPO went ahead in the face of uncertain global conditions after regulators told China's banks to raise new capital following a lending boom last year in support of Beijing's stimulus. Other banks also plan to raise billions of dollars, and investors worry the flood of new shares will swamp the market and drag down prices.
Agricultural Bank closed at 2.71 yuan (40 U.S. cents) per share, up 1 percent from its IPO price of 2.68 yuan but below its morning trading price.
"The market is not specifically excited about Agricultural Bank," said Zhang Jixiu, a banking industry analyst for Hongyuan Securities in Beijing.
The Shanghai market is off-limits to most foreign investors. Trading starts Friday in Hong Kong, a Chinese territory where the stock market is open to foreign buyers.
ABC sold 25.4 billion shares in Hong Kong and 22.2 billion shares in Shanghai, raising $19.2 billion. The total could rise to $22.1 billion if underwriters exercise an overallotment option by Aug. 5 to purchase additional shares, according to the prospectus.
The global IPO record of $21.9 billion was set in October 2006 by another Chinese state-owned lender, Industrial & Commercial Bank of China Ltd.
Investor concern about the flood of new shares has helped to depress China's stock markets, which are down about 25 percent from the start of the year.
The Agricultural Bank shares "added burdens to the market at a time when it lacks optimism and liquidity," said Liu Feng, a strategist with Central China Securities. "It weighed on the market negatively."
China's banks are viewed as the world's strongest after they avoided the credit turmoil that battered Western institutions.
However, Chinese authorities have expressed concern about a possible spike in bad loans following last year's lending boom.
This week, ratings agency Fitch warned that some institutions might face bigger credit risks than they are disclosing and are using complex deals that obscure the true scale of their lending. Fitch said official figures on bank lending for the first half of the year understate the total by 28 percent, or 1.3 trillion yuan ($190 billion).
"Already weak disclosure is getting even worse," the agency said in a report.
This month, China's bank regulator ordered trust companies to stop doing deals with banks to repackage loans for sale as securities, according to news reports. It cited concern the tactic allowed credit to move out of the banking system without regulatory oversight.
Agricultural Bank is the last of China's "big four" state-owned commercial lenders to have an IPO. It is viewed as weaker and less profitable than ICBC and its other urban-based counterparts. It operates a costly network of farflung rural branches and its nonperforming loan ratio is higher than other major banks at about 3 percent.
In its offering, the bank emphasized its links with major state companies and growing income from insurance, investment banking and other services. It reported assets totaling $8.5 trillion by the end of 2009.
"It's understandable that investors have concerns over Agricultural Bank's profitability, but as it urbanizes, I think Agricultural Bank will gradually show its dominant resources in the long term," said Chen Haifeng, a fund manager at CapitalEdge Investment management Ltd. in Shanghai.
Institutional and retail investors were attracted by China's growth prospects despite its stock market doldrums.
In the Hong Kong offering, major investors include the Qatar Investment Authority ($2.8 billion), Kuwait Investment Authority ($800 million), Britain's Standard Chartered Bank ($500 million), Dutch bank Radobank Nederland ($250 million), Australia's Seven Group Holdings Ltd. ($250 million) and Singapore's Temasek Holdings ($200 million).
Chinese banks have announced plans to raise more than $40 billion from investors in Hong Kong and Shanghai to rebuild their capital after lending a record 9.6 trillion yuan ($1.4 trillion) in 2009.
Bank of China Ltd. said July 2 it will raise up to 60 billion yuan ($8.9 billion) with a rights issue to its shareholders. Construction Bank of China Ltd., announced a similar rights issue in April to raise up to 75 billion yuan ($11 billion).
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