Industrial and Commercial Bank Of China |
China's biggest bank, The Industrial and Commercial Bank of China raised $21.94 billion by its world's biggest initial public offering in October, 2006. In this article, first, we will analyze the pros and cons of ICBC decision to issue equity to the investors outside China. Then, we will discuss the attraction of ICBC listing to foreigners and analyze the risks associated. |
In October 2006, the Industrial and Commercial Bank of China (ICBC), China's biggest bank had a historic dual listing on two stock exchanges, the domestic portion of the stock shares on Shanghai stock exchange (A Shares) and shares on Hong Kong stock exchange (H shares), which was mainly for the global investors. Due to the massive oversubscription of IPO, ICBC was able to exercise the greenshoe, or over-allotment option, which enabled it to sell up to 14.95 billion. ICBC decided to issue equity shares to foreign investors to make this mega IPO a huge success, to the tune of over $430 billion dollars, “almost twice the value of Citicorp, the world’s largest bank” (Hill, 2011). It was the only way to improve its capital strength, capital adequacy, profitability and sustainability. Since it has presence in 13 countries and regions globally, the foreign investments can reduce the entry barriers in various countries. The foreign investment was necessary to improve the bank's balance sheets, risk management and modernize the bank's various systems to withstand competition. Therefore, Merill Lynch, China International Capital Corporation (CICC) and ICEA Capital were made joint global coordinators for the sale and Credit Suisse and Deutsche Bank were joint book runners to boost up the foreign investment. ICBC wanted the investors with a long term perspective; therefore it was looking for foreign investors. This proved advantageous for ICBC as the IPO was oversubscribed and...