BEIJING, Jun. 12 -- Agricultural Bank of China (ABC) will allocate 35 percent of its around $20 billion initial public offering(IPO) to cornerstone investors, to reduce pressure on weak stock markets, the China Business News reported Friday, citing unnamed sources.
Cornerstone investors for ABC's Hong Kong-listed H-share offering are expected to invest between $100 million and $1 billion each, sources involved with the deal said on Thursday. Interested sovereign funds, which also include Kuwait and China Investment Corp, are in talks to buy up shares worth closer to the $1 billion mark.
So-called cornerstone investors are important to the success of an IPO and in this case could prove critical to the offering, as the deal is racing against a falling stock market.
According to report by the newspaper, the cornerstone investors for the Hong Kong portion of the offering include Temasek Holdings Pte Ltd, Government of Singapore Investment Corp, Standard Chartered PLC, Rabobank, Daiwa Securities Group Inc, Nomura Holdings Inc, Kuwait Investment Authority, Abu Dhabi Investment Authority, Qatar Investment Authority, and three Hong Kong tycoons--Li Ka-shing, Lee Shau-kee and Cheng Yu-tung.
Cornerstone investors for the Shanghai portion of the IPO include China Life Insurance Co, People's Insurance Co (Group) of China Ltd, China Pacific Insurance (Group) Co, New China Life Co, China National Petroleum Co, State Grid Co and China Resources (Holdings) Co, the report said.
These investors agree to buy into the IPO before the pre-marketing period, allowing the underwriters to show potential institutional investors that the deal already has solid financial backing. In return, cornerstones receive preferential shares.
ABC's underwriters are in talks to sign up around 20 cornerstone investors, the sources said, with the final list expected to be wrapped up this weekend.
Hong Kong approval
The Hong Kong stock exchange listing committee gave its approval to the IPO on Thursday, as expected, a day after China's regulators gave the deal their green light, one source said.
The sources said the IPO was expected to price on July 7, with a debut the following Thursday or Friday.
If ABC raises more than the $23 billion it hopes for, it will be the world's largest ever IPO.
Normally, cornerstone investors are locked up for six months, but with ABC pushing such a massive IPO, a one-year commitment will add confidence to the offering in the aftermarket.
Large IPOs often push for 12-month lock-up periods, as occurred with several of China's big bank offerings.
The bank's top executives and Beijing officials are asking the underwriters to ensure that the stock trades up around 10 percent on its debut, the sources said.
A Reuters poll of 18 fund managers, strategists and analysts conducted this week suggests ABC could command a valuation of 1.5 times its book value, meaning the lender's IPO is likely to end up raising closer to $20 billion than the $30 billion originally envisioned.
ABC unveiled key financial figures last Friday, detailing plans to issue up to 47.6 billion new shares, or 15 percent of its expanded capital, and forecasting a sharp rise in yearly net profit.
Shanghai A shares would account for 7 percent of the lender's enlarged capital, while its Hong Kong H shares would account for 8 percent, according to the preliminary prospectus.