Will China kill off ABC’s IPO plans?

It’s three down, one to go. The Agricultural Bank of China, the sole unlisted bank in China’s ‘big four’ is set to launch its IPO and raise USD12 billion in the process, according to Bloomberg. But why does the bank want to go public in the midst of a global recession?

Despite the banking sector being plunged into the throes of recession not every bank’s bottom line has been decimated. And for those lenders lucky enough to maintain a strong balance sheet in the current economic disaster this could be their last chance to take a big stake in a major Chinese bank at a fraction of the cost, according to Bloomberg.

Kim Eng analyst, Ivan Li said that “Pre-IPO pricing for strategic investors should still be low, and investors can probably make a good profit.” So when does ABC plan to go public?

While the exact timing of the IPO is yet to be determined the Chinese lender said it is “committed to doing it this year.” But China’s stringent regulators disapprove of the bank’s actions saying that it would prefer to “see the IPO happen in 2010 instead.”

The regulator’s choice
Should the IPO go ahead this year as planned, which banks will swoop? While a slew of banks have been linked to ABC, China Life seems to be the regulator’s preferred option given China’s poor experiences with foreign banks recently.

The Royal Bank of Scotland for example was accused of buying-state assets at a cheaper price only to make a profit from the sale of the shares, according to Bloomberg. “China Life is the one that has the better chance of winning,” said Li.

But why is China Life at the top of the pack? The bank’s strong balance sheet coupled with its state-owned background would not only benefit ABC’s bottom line but also make for a smooth transition given its government links, according to Bloomberg. “China Life is one of the few candidates which have a strong balance sheet and state-owned background,” said Li.

Going public
The bank’s plans to go public have been well underway since November last year when the bank injected USD2 billion to boost its capital. The path towards its IPO continued into January 2008 with the bank completing its restructuring into a joint stock holding company, and in March the bank commenced its highly-anticipated dual listing plan to seek mandates to underwrite and distribute the bank’s new share issue, according to Bloomberg. It would seem that the country’s second biggest lender is champing at the bit to join the publicly listed big boys in the Chinese banking sector. But one question still remains, will the listing actually go ahead?

With China’s regulators already giving ABC’s IPO plans the cold shoulder for 2009, it is unlikely that the bank will go public just yet. But that hasn’t stopped ABC from garnering interest from investment banks, according to Bloomberg. “The listing is still remote but we still expect lots of investors will be interested in taking a stake in ABC,” said Li.