Agricultural Bank of China , preparing for the world's largest-ever IPO, unveiled key financial figures on Friday, detailing plans to issue up to 47.6 billion new shares and forecasting a sharp rise in yearly net profit.
Preliminary figures show that the bank appears to be in relatively good health, a remarkable turnaround considering it was technically insolvent in 2007. Still, China's last major lender to go public is seen as the weakest of the Big Four.
AgBank, which hopes to raise around $30 billion, said total assets rose 33 percent from 2008 to 9.5 trillion yuan, making it China's third largest bank.
The Beijing based company said it forecast a 2010 net profit of at least 82.9 billion yuan ($12.14 billion), which would be up 28 percent from the year ago period.
The lender's non performing loan ratio was 2.5 percent as of the first quarter, compared with 2.9 percent at the end of 2009.
The NPL ratio reflects a healthy balance sheet, said Alex Wong, director of asset management of Ample Finance. While the decline is a good sign, we should not get too excited about the drop as the effect of the strong loan growth of the past two years is yet to flow into NPLs.
China's banks embarked on a government backed lending spree during the financial crisis, which helped prop up China's economy.
AgBank said its Shanghai A shares would account for 7 percent of its enlarged capital, while its Hong Kong H shares would account for 8 percent, according to a preliminary prospectus released by Chinese regulators on Friday. Of the total shares issued, 25.4 billion would go through Hong Kong.
AgBank said it set a target for core capital adequacy ratio of 8.5 percent for 2010 to 2012, just above the 8 percent limit required by the government.
The bank plans to list in Hong Kong and Shanghai in mid July.
If the lender exercises the greenshoe over-allotment option for both offerings, it will issue to 54.8 billion shares.
The AgBank IPO arrives at a time when the global economy is on shaky ground, with fears of a Euro sovereign debt crisis looming. China's stock market <.SSEC> has fallen 19 percent since mid-April, while the Hong Kong market <.HSI> is down 10.7 percent. The drop has led several IPOs and other offerings to be pulled before they hit the market.
The last official financial data from AgBank was its 2008 year-end results, though certain details have trickled out since.
AgBank is the last of China's big four banks to list its shares and the first to do so without first bringing in a major foreign strategic investor, underscoring how the global financial crisis has dented the reputation of foreign banks in China.
The commercial bank, started in 1951, has a customer base of 350 million, larger than the population of the United States.
The China Securities Regulatory Commission (CSRC) will review the IPO application on June 9, with Hong Kong expected to do the same a day later. It aims to debut its A-shares in Shanghai on July 15 and its Hong Kong H-shares a day later.
BACK FROM THE BRINK
The bank published its first audited annual report in April 2009. As recently as 2007 it was technically insolvent, with a non-performing loan ratio of 24 percent, before a $30 billion capital injection and massive bad debt carve-out.
Agbank's NPL ratio dropped to 4.32 percent by the end of 2008, still more than double the level of other state-owned lenders. As the last of China's major state-run lenders to go public, AgBank is regarded as the weakest of the Big Four.
China's major state-owned banks have gone from insolvent by Western standards less than a decade ago, to some of the largest financial institutions in the globe.
The country's economic boom since joining the WTO in 2001 and tight financial controls have allowed China's financial institutions to prosper while other Western banks have fallen.
China's Industrial and Commercial Bank of China (ICBC) <1398.HK> is the largest bank in the world by market capitalization, which at $216 billion is nearly twice the size of Citigroup , the U.S. bank that once could boast that title.
The key for investors will be determining how much AgBank's stock price is worth, when comparing its valuations with peers.
According to a BofA Merrill Lynch report, ICBC trades at 2.1 times 2010 price-to-book, Bank of China <3988.HK><601988.SS> at 1.5 times, and Bank of Communications <601328.SS> at 1.8 times.
Yang Liu, China-focused fund manager at Atlantis Investment Management, said the lower valuation AgBank is expected to get would offer a great opportunity for investors.
From an asset allocation perspective, if a fund isn't investing in AgBank, I can say it hasn't invested in China, Yang said.
Separately on Friday, Dutch Rabobank said it signed a strategic cooperation with AgBank to share its experience in wholesale banking and rural finance, but did not say it was investing into the Chinese lender.
(Additional reporting by Denny Thomas, Kennix Chim, Wei Gu and Daisy Ku in HONG KONG, Jason Subler in SHANGHAI, Michael Wei in BEIJING and Gilbert Kreijger in AMSTERDAM; Editing by Chris Lewis, Ian Geoghegan and Jon Loades-Carter)