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AgBank shares to start trading in Hong Kong

Chinese banks distort lending figures: Fitch
Beijing (AFP) July 15, 2010 - Chinese lending in the first half of 2010 has been understated by nearly 200 billion dollars as banks secretly shift loans off their books to meet government requirements, according to a new report. Fitch Ratings estimates new lending in the six-month period was 28 percent, or 192 billion dollars, higher than official data shows as banks covertly repackaged loans into investment products and sold them to investors. Chinese banks officially issued 4.6 trillion yuan (679 billion dollars) in new loans in the first half, but the actual figure was probably closer to 5.9 trillion yuan, Fitch said.

"The vast majority of these transactions are not publicly disclosed by Chinese banks... resulting in pervasive understatement of credit growth and credit exposure," Fitch analysts said this week. China has sought to curb rampant bank lending this year after new loans nearly doubled to 9.6 trillion yuan in 2009, fuelling fears of a damaging bubble in the property sector and an explosion of bad debts. Authorities have set a lending target of 7.5 trillion yuan for this year and ordered banks to increase the amount of money they keep in reserve, effectively limiting the amount they can lend.

To get around these restrictions, banks are increasingly moving loans off their balance sheets through "informal securitisation", which Fitch says is masking the true extent of bank lending and bad debts exposure. Demand for these repackaged loans is also growing as investors, faced with negative real savings rates and weak equity markets, seek higher-yielding investments, it said. At the end of the first half, Fitch estimates that more than 2.3 trillion yuan in outstanding loans was sitting off the balance sheets of Chinese banks in investment products -- a more than tenfold increase from the end of 2007. Alarmed at the amount of credit leaking out of the banking system, China's banking regulator earlier this month slapped a temporary ban on informal securitisation, Fitch said.
by Staff Writers
Hong Kong (AFP) July 16, 2010
Agricultural Bank of China's shares were set to start trading in Hong Kong Friday, one day after the bank's mammoth initial public offering drew a tepid investor response in its Shanghai debut.

The last of China's "Big Four" state banks to go public is on track to raise a world record 22.1 billion US dollars in the dual Hong Kong-Shanghai listing which has shone a spotlight on investor confidence in China's economy.

Trading on the Hong Kong stock exchange was scheduled to begin Friday morning, after the Shanghai shares closed just slightly higher on their debut Thursday, despite analysts' expectations that the stock would soar.

AgBank's Shanghai shares closed at 2.70 yuan (40 US cents) -- up 0.75 percent from the IPO price of 2.68 yuan, but below the opening price of 2.74.

The rural lender said Thursday that the Hong Kong portion of its initial public offering was nearly six times oversubscribed.

The sale drew a total of 117,176 bids for 7.46 billion shares, equivalent to about 5.87 times of the total number of shares initially available for the Hong Kong part of the public offering, it said.

But AgBank did not disclose whether it would exercise an over-allotment option to issue additional shares, a crucial factor in determining whether the monster sale would overtake rival Industrial and Commercial Bank of China's 21.9-billion-dollar IPO in 2006.

The total number of AgBank's IPO shares is not yet known and will be determined by its market performance.

AgBank scaled back its original IPO target of nearly 30 billion US dollars amid choppy markets and questions about the quality of its balance sheet.

The bank's Hong Kong sale won the support of almost a dozen heavyweight investors, including Qatar's sovereign investment fund, British bank Standard Chartered and Hong Kong's richest tycoon, Li Ka-shing.

The biggest investor in the Shanghai issue was China Life, the nation's biggest life insurer by premium income.

A total of 40 percent of the mainland shares went to 27 so-called cornerstone investors -- mostly state-owned entities ranging from Cofco Ltd, China's main grain producer, to China Aerospace Science and Industry Corp to the operators of the Three Gorges Dam.

The bank was founded two years after Mao Zedong's 1949 communist revolution, with a mission to lend money to China's poor farmers and distribute state money in rural areas.

But heavy exposure to China's poverty-stricken interior meant that mission was frustrated by decades of chaotic policies, leaving it awash with bad debt.

Despite Beijing's efforts to salvage AgBank, it is the weakest of China's big banks and it remains to be seen whether it can shift from policy bank to profit-oriented company.

AgBank's stock market debut Thursday came after Fitch credit ratings agency warned of growing risks in China's banking system.

The agency warned in a report that complex deals were obscuring hundreds of billions in loans and possibly concealing a new batch of bad property and infrastructure lending.

earlier related report
AgBank makes lacklustre China debut
Shanghai (AFP) July 15, 2010 - Agricultural Bank of China made a lacklustre stock market debut on Thursday, despite forecasts of a soaring start to what could be the world's largest initial public offering.

AgBank -- the last of China's "Big Four" state banks to go public -- hopes to raise a record 22.1 billion dollars in a mammoth dual share sale in Shanghai and Hong Kong, where trading will begin on Friday.

The opening days of trade could signal whether it will maximise the number of additional shares it can offer to make IPO history, beating Industrial and Commercial Bank of China's 21.9-billion-dollar offering in 2006.

The listing has cast a spotlight on investor confidence in the world's number three economy, and Agbank's less-than-stellar start highlighted concerns among analysts about the health of the banking sector.

AgBank chairman Xiang Junbo called the IPO an "important step" towards the bank becoming a "global, first-class commercial" institution, before striking a gong with Shanghai Communist party chief Yu Zhensheng to start trading.

"We are relatively satisfied with today's stock prices, which reflect investors' positive views on AgBank's current status and outlook," bank president Zhang Yun told reporters.

AgBank shares closed at 2.70 yuan -- up just 0.75 percent from the IPO price of 2.68 yuan. The bank's weak start rippled out to affect sentiment on the broader Shanghai market, which closed down 1.87 percent.

"The performance is weaker than expected," Shen Jun, a strategist at BOC International (China) Ltd, told Dow Jones Newswires.

"We didn't expect it to shine on the first day," Yan Li, a Beijing-based analyst with Southwest Securities, told AFP.

China is on track to be the world's biggest IPO market this year with up to 300 companies expected to raise 500 billion yuan (close to 74 billion dollars), according to PricewaterhouseCoopers.

The total number of shares to be issued by AgBank is not yet known and will be determined by its market performance.

A strong start would have meant AgBank would fully exercise its over-allotment options by selling an additional portion of up to 15 percent of the number of shares initially issued -- making it the world's largest IPO.

The bank, which was founded two years after Mao Zedong's 1949 communist revolution, has raised 19.2 billion dollars so far.

To prevent AgBank shares from dropping below the IPO price, the underwriter can use subscription funds for the over-allotment portion to buy shares from the market to shore up the stock price, analysts said.

Such a move would mean the over-allotment option would not be fully exercised.

"The underwriter of AgBank's IPO has around 8.9 billion yuan in their hands... to buy shares on the market to ensure AgBank does not fall below its IPO price," said Yan Ji, investment director at HSBC Jintrust Fund Management in Shanghai.

If the shares fall below their IPO price, the underwriter can buy stock on the market and sell it to subscribers at the IPO price, reducing the need for additional shares to be issued.

AgBank said the IPO was nearly six times oversubscribed in Hong Kong, but did not indicate if it would fully exercise its over-allotment option.

The bank was founded in 1951 with a mission to lend money to China's poor farmers and distribute state money in rural areas.

But heavy exposure to China's poverty-stricken interior meant that mission was frustrated by decades of chaotic policies, leaving it awash with bad debt.

Despite Beijing's efforts to salvage AgBank by wiping more than 345.8 billion yuan from its books, it remains the weakest of China's big banks and it remains to be seen whether it can shift from policy bank to profit-oriented company.

This week, Fitch credit ratings agency warned of growing risks in China's banking system, saying complex deals were masking billions of dollars in loans and possibly concealing a new batch of bad property and infrastructure lending.

AgBank's Hong Kong sale nevertheless drew almost a dozen heavyweight investors, including Qatar's sovereign investment fund, British bank Standard Chartered and Hong Kong's richest tycoon, Li Ka-shing.

The biggest investor in the mainland issue was China Life, the nation's biggest life insurer by premium income.

A total of 40 percent of the mainland shares went to 27 cornerstone investors -- mostly state-owned entities ranging from Cofco Ltd, China's main grain producer, to the operators of the Three Gorges Dam.




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FARM NEWS
China AgBank set for massive stock debut
Shanghai (AFP) July 14, 2010
Agricultural Bank of China debuts on the Shanghai stock market Thursday, completing a great leap from peasant policy bank to capitalist darling in what is expected to be a world record IPO. AgBank's performance in Shanghai and in Hong Kong - where trading starts Friday - will signal whether it is maximising the number of additional shares it can offer and has raised a record 22.1 billion U ... read more

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