As preparations are in full swing for Agricultural Bank of China's supposedly record-breaking initial public offering, it has been an interesting exercise to re-read the stories we wrote leading up to Industrial and Commercial Bank of China's $21.9 billion dual listing in Shanghai and Hong Kong -- the transaction we chose as our Deal of the Year in 2006.
While these two banks have historically had a reputation of serving different segments of the market (partly a legacy of the type of clients and lending the government has pushed them to pursue), ICBC battled many of the same issues in the lead up to its listing, including a concern that a deterioration in economic growth may reverse all the good work done to its balance sheet in the previous couple of years and trigger a renewed increase in dodgy loans. At the time, more than one observer -- this reporter included -- also wondered whether ICBC wasn't trying to chew off too much by attempting the largest IPO the world had ever seen and to do it in a record time (just seven months) from mandate to listing. Sounds familiar?
ICBC wasn't the first of China's state-owned banks to go public and bankers not working on the deal were happy to point out that it was to some extent able to build on the work done by China Construction Bank and Bank of China, which both listed in Hong Kong before it. In fact, China Construction Bank won our deal of the year award in 2005 for being first and for showing -- long before the mass government bailouts of financial institutions in Europe and the US left fund managers with few other options -- that the state-owned Chinese lenders could be desired investment targets.
ICBC was, however, the largest Chinese lender to seek a listing and being large almost always leads to complexity. If not before, this became painfully clear to the bookrunners as they tried to get the first half results from 18,000 branches completed within a very narrow window to achieve their wished-for timetable. The overall execution went extremely smoothly, however.
The bank also broke a lot of new regulatory ground by being the first Chinese company to do a simultaneous A- and H-share offering. We thought, and argued, at the time that dual listings would become a very important tool for allowing the Hong Kong and Shanghai markets to develop side by side. And we were right -- although the method has been slightly modified with today's dual listings being somewhat staggered to leave room for differentiated pricings.
Whether Agricultural Bank will succeed in its plan to raise up to $30 billion later this year remains to be seen, but ICBC and the bankers working on that deal most definitely delivered on what they set out to do, winning a lot of admirers in the process.
As we noted in our write-up of the 2006 Deal of the Year, this was an award that "needed no debate."
"Not only was it the largest ever IPO globally -- surpassing NTT DoCoMo's primary share issue in 1998 by more than $3 billion -- it also attracted an unprecedented $500 billion worth of investor demand, achieved a higher valuation than the other two 'Big Four' Chinese banks before it and overcame numerous regulatory hurdles to finally complete the first simultaneous listing in Hong Kong and Mainland China," we explained.
To underline our decision we also named this transaction Best Equity Deal, Best IPO and Best Privatisation.
Trading performance was good too. The H-share rose 14.6% on the first day of trading and added 34% in the six weeks running up to our awards announcement. As of now, three-and-a-half years later, it is trading 76% above the IPO price, although it did dip to within a few cents of that initial price during the equity market selloff in late 2008 and early 2009.
Further proving that our choice back then was the right one, ICBC has grown to become the largest commercial bank in the world in terms of market capitalisation since then.
While the deal did almost sell itself once the books opened, the leads were taking no chances and before launch lined up commitments from 15 corporate investors to buy $3.5 billion worth of H-shares. ICBC also secured a $3.78 billion pre-IPO investment by Goldman Sachs and partners Allianz and American Express, which helped instil confidence among investors.
The choice of Goldman as a strategic partner was savvy and, while we had no way of knowing it at the time, it also proved to be the right long-term move. The US bank stood by ICBC during the recent financial crisis by retaining the bulk of its investment, even as many other US and European financial firms exited their investments in Chinese banks last year in a quest for cash. (Admittedly, back in 2006 we were more focused on how good an investment this was for Goldman.)
So, big did turn out to be better in the case of ICBC's IPO. However, there are no guarantees that a listing that eventually exceeds it in size will automatically qualify for Deal of the Year. Although, if the execution is smooth and the deal is positioned in a way that allows the shares to trade well, I dare say it will make the short-list.
The following banks were involved in ICBC's IPO. On the H-share tranche: China International Capital Corp (CICC), ICEA, Merrill Lynch, Credit Suisse and Deutsche Bank. On the A-share tranche: CICC, CITIC Securities, Guotai Junan Securities and Shenyin & Wanguo Securities.
If you are interested in re-reading some of the coverage at the time, you can take a look at:
- ICBC starts pre-marketing of mega IPO
- ICBC's indicative price range offers discount versus peers
- ICBC surprises no one by pricing record IPO at the top