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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Singapore Asia Pacific World China AgBank's massive IPO highlights cash squeeze By ELAINE KURTENBACH,AP Business Writer - Wednesday, July 7 Send IM Story Print SHANGHAI – Agricultural Bank of China's $22 billion initial public offering is making headlines as potentially the world's biggest. It is also underlining the cash squeeze Chinese banks are facing after a massive lending binge. Original forecasts had put potential proceeds from the offering at a whopping $30 billion, much more than what the bank, also known as ABC, will actually take in. But the lender had little choice about the timing. China's banks are now strapped for cash having lent a record 9.6 trillion yuan ($1.4 trillion) in 2009 to support Beijing's economic stimulus. Regulators have ordered them all to shore up their balance sheets. "The IPO's timing was not up to ABC itself. It simply has to get this IPO assignment done to raise funds in the market to fulfill its cash requirements," said Zheng Ning, an analyst at Founder Securities in Beijing. "All the banks are facing a huge gap in cash flow, and the massive demand for capital will definitely weigh on the market in the short term," Zheng said. ABC is selling 25.41 billion shares in Hong Kong and 22.24 billion shares in Shanghai. It priced its shares to be issued in Shanghai at the upper limit of its price range, at 2.68 yuan ($0.39) per share, the bank said in a notice late Wednesday to the Shanghai Stock Exchange. With that pricing, the rural lender will raise about $19.23 billion. Details of pricing for the Hong Kong segment of the IPO have not yet been issued. But a person familiar with the matter said ABC's shares priced at HK$3.20 each (41 cents). The person requested anonymity because details of the IPO were not yet due to be released. But underwriters are expected to buy about $2.89 billion more shares of an overallotment, or greenshoe option, enabling the dual listing to raise about $22.12 billion _ the most funds ever for an IPO. Industrial and Commercial Bank of China raised $21.9 billion in its October 2006 IPO _ the existing record and the only other time a company listing in Shanghai has used a greenshoe option. Investors were apparently unprepared to pay the original higher price suggested for the shares because ABC is viewed as weaker and less profitable than its urban-focused competitors. Proceeds would total HK$81.31 billion ($10.44 billion) in Hong Kong and 59.58 billion yuan ($8.79 billion) in Shanghai. A dip in the benchmark Shanghai Composite Index to a 15-month low on Monday underscored worries that the offering might overwhelm investor demand. The global IPO market also has suffered this summer, as shares tumbled amid mounting uncertainty over the economic recovery. But shares bounced back Tuesday in Shanghai on bargain hunting _ just the kind of buying interest that is helping ABC, says Zheng. "It's precisely easier to sell shares at a lower price," the analyst said. The Shanghai benchmark rose 0.5 percent, or 11.69 points, to 2,421.12 Wednesday on news the social security fund was buying shares. Liquidity pressures also eased as ABC wrapped up its IPO subscriptions. The bank's shares are due to begin trading July 15 in Shanghai and a day later in Hong Kong. The bank won strong backing both from sovereign funds and other institutional investors, especially China's government institutions, and from retail investors who view China _ despite its recent market malaise _ as the best growth story on offer. Major foreign investors in the Hong Kong offering include some of the territory's biggest tycoons and also 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). Some 114 Chinese companies raised $20.2 billion in IPOs on 10 exchanges in the first quarter of this year, with most of the funds raised in Shanghai, Shenzhen and on the entrepreneur-oriented ChiNext board. ABC reported assets totaling $8.5 trillion by the end of 2009. As China's main rural lender, even after restructuring it carries the largest nonperforming loan ratio of the big mainland banks, at 2.9 percent _ a figure analysts say is understated. The bank's traditional clients are rural companies, not individual farmers, who tend to rely on personal savings, informal lending networks and rural credit cooperatives. But the bank is also emphasizing its ties with dozens of big state-run companies and the growing share of its income from insurance, broking, investment banking and cash management businesses. "Rural markets are low profit compared to the big cities, but if ABC makes better use of its resources to expand in the countryside, it would own its own blue ocean," said Peng Yunliang, an analyst at Shanghai Securities in Shanghai. ___ Associated Press business writer Tali Arbel in New York and researcher Ji Chen in Shanghai contributed to this story. 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