Hong Kong retail crowd shows interest in AgBank IPO

Agricultural Bank of China opened the retail portion of its IPO in Hong Kong on Wednesday, attracting a steady stream of investors prepared to brave weak markets and concerns demand for the roughly $20 billion offer.

Individual investors headed to local bank branches to pick up offer documents, and while foot traffic at HSBC's Kwun Tong branch in eastern Kowloon indicated decent interest in China's third-largest bank, it was hardly the frenzy that has greeted other large Chinese bank offerings.

"I plan to subscribe for HK$20,000 ($2,569)," said a middle-aged woman surnamed Sun, who arrived shortly after the bank branch opened at 9 a.m.

The housewife said she had previously bought shares of Industrial and Commercial Bank of China and China Construction Bank when they went public, and compared to those Chinese banks, AgBank was cheap in terms of valuation.

The view on valuation is the critical element of AgBank's deal, which, if it exceeds the $21.9bn that ICBC raised in 2006, will be the world's largest-ever IPO.

How much the Beijing-based bank raises is important for the lender in terms of giving it an adequate capital cushion and is also key for China as a whole, as it will signal investor appetite for one of the country's key sectors.

Shanghai's benchmark stock index fell 4 per cent on Tuesday, partly as a result of liquidity concerns and preparations for the AgBank deal, a signal of how important the IPO is for this market.

Michael Chung, a fund manager at Iventure Investment Management, said he does not expect to invest in AgBank as he wants to avoiding locking up money for the subscription of IPO in a volatile market.

"I would rather buy in ICBC or CCB, which have more solid fundamental and valuations are not expensive given recent slump of stock market," he said.

AgBank's price-to-book valuation of 1.5 to 1.7 times is cheaper than ICBC and CCB, but it's about the same or slightly higher than that of Bank of China, the country's fourth-largest lender.

AgBank's heavy exposure to rural China and its historically high non-performing loan book has some investors worried as the IPO enters the final weeks.

When ICBC went public, queues at bank branches went out the door and around the corner, with police and security called in to maintain order, but the offering of China's largest bank by assets came during a bull market.

China's stock market had fallen around 20 per cent from mid-April until a week ago, and dropped further on Tuesday. But that has not completely deterred retail investors, who are allowed to subscribe to at least 5 per cent of the Hong Kong IPO and as much as 15 per cent depending on demand.

"It's a very suitable investment," said a 50 year old unemployed man surnamed Cheung. Employed or unemployed, Hong Kong's population is famous for its heavy interest in IPOs.

"AgBank is not a risky investment," he said, after arriving at an HSBC branch in Hong Kong's Mong Kok district. "It's stable."

For institutional investors seeking China exposure and a lift for their portfolios, the jury is still out on AgBank. Global markets are dropping along with China's stock market, on liquidity concerns, the euro zone sovereign debt crisis and other factors.

AgBank prices on or around July 6, allowing plenty of time for a market pick-up or drop ahead of the July 15 debut in Shanghai. It plans to list on July 16 in Hong Kong under the trading symbol "1288".

Corporations known as cornerstone investors have bought up more than $5bn of the Hong Kong offering already, a deal aimed at raising up to $11.4bn excluding a 15 per cent over-allotment of shares. The Shanghai deal is aimed at raising just under that amount.

Mutual funds are expected to be highly interested in the stock, although a Reuters poll indicated that any price above 1.5 times book value would be perceived as expensive.

Individual investors seem undeterred however, despite a more muted turnout that other Hong Kong IPOs

"I'm going to buy this for myself, and my kids, and treat it as a long-term investment. I plan to subscribe to HK$300,000-worth of shares," said a man surnamed Kwok, 58, said in Hong Kong's Central district, adding that the amount of big funds and corporations that had come into the IPO beforehand gave him confidence.