Agricultural Bank of China officially completed the world’s largest initial public offering yesterday by fully exercising its over-allotment quota, bringing the total amount raised by the bank to about $22.1bn.
But claiming that title has been an arduous task for the bank, its underwriters and state-controlled Chinese institutional investors, who have struggled to keep AgBank shares in Shanghai and Hong Kong above the IPO price for the first 30 days of trading to avoid a claw-back of the over-allotment quota.
AgBank began trading on July 15 in Shanghai and on July 16 in Hong Kong in the midst of volatility and poor market sentiment. The stock barely rose above its issue price in either market in its first week.
In Hong Kong the bank’s shares have fared better since then, but in Shanghai, the price has dropped back to the issue price of Rmb2.68 over the last week.
The bank’s weak trading debut raised fears that its shares could fall low enough to require the bank’s underwriters to claw back some of the pre-sold over-allotment, known as the greenshoe, which would have jeopardised its bid to be the world’s largest IPO.
The bank earlier announced its Hong Kong over-allotment had been fully exercised by July 29 and people familiar with the situation said the Shanghai portion had also been fully exercised by the market close yesterday.
By fully exercising the 15 per cent greenshoe quota in both markets, AgBank has eclipsed domestic rival Industrial and Commercial Bank of China, which raised about $21.9bn in 2006 in what was, until now, the world’s largest IPO.
If AgBank’s shares had fallen much below their issue prices of Rmb2.68 in Shanghai and HK$3.20 in Hong Kong, the bank’s stabilisation agents – Goldman Sachs in Hong Kong and China International Capital Corp in Shanghai – would have stepped in to support the price in what would have amounted to a claw-back of some or all of the over-allotment greenshoe quota.
AgBank said earlier this month that its stabilisation agent in Hong Kong had spent some HK$630m ($81m) buying shares in the open market at the issue price of HK$3.20 in an effort to stop them dropping too low in their first week.
In Shanghai, a number of state-controlled institutional investors have been very active in the market, supporting the shares at their issue price in spite of heavy selling pressure from ordinary investors.
Analysts said that it was obvious that state-controlled fund managers were propping up AgBank’s shares on orders from the bank, the regulator and the government.
The bank has also been helped by its highly unusual early inclusion in the main official Shanghai stock indices at the end of last month, which meant managers of index-tracking funds had to buy its shares.
“There’s no way AgBank’s shares would have been allowed to fall below the IPO price in the first month but now the bank has achieved its goal [of executing the world’s largest IPO] the price will probably drop below Rmb2.68 next week,” said one analyst who asked not to be named.
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