2010-06-30 16:03

HONG KONG: Agricultural Bank of China (ABC) opened the retail portion of its initial public offering (IPO) in Hong Kong on Wednesday, attracting a steady stream of investors prepared to brave weak markets and concerns about 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 am.

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

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

Shanghai's benchmark stock index fell 4 percent on Tuesday, partly as a result of liquidity concerns and preparations for the ABC 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 ABC 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.

ABC'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.

ABC'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.