BOC breaks six-year record in world's largest IPO (hktdc.com)


	All's quiet now, but thousands of hopeful investors queued for hours across Hong Kong for the Bank of China initial public offering launch on May 20

Bank of China's blockbuster initial public offering (IPO) in Hong Kong has received an overwhelming response from retail and institutional investors – underlining the city's position as the premier fund-raising centre for the mainland's rapidly growing corporate sector.

China's second-biggest bank drew long queues of eager small investors rushing to make applications when its retail tranche opened on May 20. On the second day, some of the city's stock brokerages were reporting they had already allocated all the billions of Hong Kong dollars they had set aside as margin financing for clients who wanted to apply for the stock offering.

Demand was so hot in Hong Kong, a city of 6.9 million people, that an extra one million subscription forms had to be printed after the initial three million ran out. Institutional investors also placed orders for many more times shares than there were on offer.

Share price soars

Bank of China priced its offering at HK$2.95 (US$0.38) per share, near the top of a HK$2.50 to HK$3 (US$0.32 to US$0.38) per share price range. That meant it raised HK$75.5 billion (US$9.7 billion), making it the world's biggest IPO in six years and the 7th biggest in history.

And if the bank and its underwriters exercise a mechanism to enlarge the size of the issue by 15 per cent, it could raise HK$86 billion (US$11.2 billion), making it the world's fourth largest IPO in history and the biggest in 10 years since Deutsche Telekom raised US$13 billion in 1996. The world's biggest ever IPO was by Japanese mobile phone operator NTT Docomo which raised US$18.4 billion in 1998.

The success of Bank of China's share sale further cements Hong Kong's position as the destination of choice when China's corporate giants seek listings, say analysts.

"It's going to be another record year for fund-raising in Hong Kong," said Louis Wong, research director of Phillip Securities.

A total of HK$192 billion (US$24.6 billion) was raised on the Hong Kong market last year, much of it by giant Chinese former state enterprises which are being reformed as private companies. Among them were the third-biggest lender China Construction Bank, the country's largest coal producer China Shenhua Energy, and shipping giant China Cosco.

More to come

Besides the Bank of China, there are plenty more monster share issues on the way this year. China Merchants Banks and the mainland's biggest lender, the Industrial and Commercial Bank of China, are planning to list in Hong Kong in the second half of the year.

Tianjin Port Development Holdings closed its IPO just ahead of the Bank of China offering with the retail portion of the share sale oversubscribed by 1,700 times, a record for Hong Kong. The northern port operator raised HK$1.08 billion (US$139 million) from the offering, with the institutional portion 40 times covered, also high by normal standards.

Overall it's been a case of success breeding success, say analysts. The reason even the biggest IPOs have become so popular is that the new stocks have, almost without exception, performed well once they start trading on the market.

"The chance of incurring a loss in the short term has been close to zero," said Phillip's Mr Wong. "With these deals such as Bank of China, the only uncertainty is how much it will rise. It's become such that people find it hard to give it a miss."

HK overtakes Canada

The spate of big companies from China has helped boost Hong Kong's stock market into the sixth biggest in the world in April, overtaking Canada.

The Bank of China share sale in Hong Kong came as China's regulators began paving the way for the re-opening of the domestic stock markets in Shanghai and Shenzhen to initial public offerings. The sale of new shares has been halted for more than a year while companies already listed undergo a complex reform process so shares locked up in the hands of state entities can be sold on the markets.

But the re-opening of the mainland's markets to IPOs is unlikely to derail Hong Kong's success story.

"I think the impact will be quite limited," said Steven Leung, a sales director with UOB KayHian Securities.

Most Chinese companies were aiming to raise funds in a foreign currency and get exposure to international markets and investors, so Hong Kong would still be the obvious choice for a listing, said Mr Leung.

After-sales service

An additional attraction is the after-sales service in the form of being able to make additional share sales to raise money for expansion or to reduce debt. Oil giants CNOOC and PetroChina are among the Chinese companies which have raised billions of US dollars through secondary share sales on the Hong Kong market in recent months.

A good indication of the success of Hong Kong Exchanges and Clearing (HKEx), the company which runs the city's stock market, is HKEx's own stock price which has almost doubled this year.

"The IPO market will still be very attractive. The funds raised contribute a lot of turnover to the market, which has helped boost HKEx's earnings prospects and stock price," said Mr Leung.