By Cathy Chan Jan. 15 (Bloomberg) — Agricultural Bank of China , the country’s third-biggest by assets, may exclude foreign investors from buying shares before an initial public offering scheduled for this year, three people familiar with the matter said. The Beijing-based lender had previously held talks with European banks including Credit Agricole SA and Rabobank Nederland NV about investing before the IPO, one of the people said, declining to be identified because the discussions were private. The offering may raise as much as 200 billion yuan ($29.3 billion), according to reports in Chinese newspapers. That would make it the biggest first-time sale ever. Agricultural Bank would be the only one among China’s four largest lenders not to accept foreign investment before its IPO. Goldman Sachs Group Inc. and Bank of America Corp. are among firms that reaped multibillion-dollar profits investing in three Chinese state-owned banks before IPOs in 2005 and 2006 and selling part of their stakes last year. “History has shown that many of these so-called strategic investors are more like common financial investors seeking quick returns as they want to benefit from China’s economic growth,” said CSC Securities HK Ltd. analyst Li Qing . Agricultural Bank, which mainly serves China’s 700 million rural dwellers, may raise between 100 billion yuan and 200 billion yuan selling shares this year, Li Fuan , head of the China Banking Regulatory Commission’s banking innovation department, said last month, according to the Securities Times. ‘Strategic’ Investors A spokesperson for Agricultural Bank, who asked not to be identified citing company policy, declined to comment. Credit Agricole spokesman Stephane Petibon and Rene Loman , a spokesman for Utrecht, Netherlands-based Rabobank Groep NV, declined to comment. Industrial & Commercial Bank of China Ltd. , China Construction Bank Corp. and Bank of China Ltd. sold shares in 2005 and 2006 just as China was finishing a decade-long effort to clean up its banking system. They brought in foreign banks as investors, aiming to tap their expertise in risk management, product innovation and technical support, executives at ICBC and Construction Bank have said. While foreign banks such as Royal Bank of Scotland Group Plc touted the “strategic” nature of their purchases, the need to salvage finances hobbled by the global financial crisis led them to sell part of their holdings after lockup periods ended last year. RBS, the lender bailed out by the U.K. government, bought a $1.6 billion stake in Bank of China in 2005, before the bank’s June 2006 IPO . The Edinburgh-based lender sold its stake for $2.3 billion in January 2009 to replenish capital. Goldman’s Paper Profit New York-based Goldman Sachs , the most profitable securities firm in Wall Street history, made a paper profit of almost $4 billion on its then six-month old investment in ICBC when the lender went public in October 2006. Goldman Sachs sold part of its stake in June for about $1.9 billion, and its remaining holding is worth $10.4 billion. Agricultural Bank, which received a $19 billion cash injection from the government and removed 800 billion yuan of non-performing loans from its balance sheet in 2008, expects to lure buyers to its IPO even without the cachet of having a foreign investor, said one of the people. “Agricultural Bank’s IPO won’t be a flop” because of a lack of foreign strategic investors, said Li. “That said, the bank could still improve its management ability with some help from foreign competitors.” China plans to increase the lockup period on new foreign investment in its commercial banks to five years from three, the Securities Times reported in April last year, citing Liu Mingkang , chairman of the banking regulator. Most Profitable ICBC, Construction Bank and Bank of China now rank among the world’s 10 largest lenders by market value, after China’s economic boom and improved risk management helped them boost profit. ICBC ranks No. 1 both by profit and market capitalization. China’s Ministry of Finance and Central Huijin Investment Co., a unit of the nation’s sovereign wealth fund, each hold 50 percent of Agricultural Bank. The National Council for Social Security Fund, China’s national pension fund, said in February last year that it won cabinet approval to invest in Agricultural Bank before its IPO. Agricultural Bank had 8.6 trillion yuan of assets as of Sept. 30, making it China’s third-largest by that measure, trailing market leader ICBC and Construction Bank. The lender operates more than 24,000 branches nationwide and employs almost half a million people. — Luo Jun , Zhang Dingmin . With assistance from Fabio Benedetti- Valentini in Paris and Martijn van der Starre in Amsterdam. Editors: Philip Lagerkranser , Joost Akkermans To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net .
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Agricultural Bank Said to Consider Shunning Foreign Investment Before IPO
