Buoyant demand sets world IPO record (hktdc.com)


	Massive demand for the Industrial and Commercial Bank of China listing further underscores Hong Kong's ability to attract foreign investment

Hong Kong's stock market easily absorbed the share sale of China's biggest bank and in the process, set a HK$148 billion (US$19 billion) world record in funds raised by an initial public offering (IPO).

The success of the blockbuster listing of Industrial and Commercial Bank of China (ICBC) cements Hong Kong's position as the destination of choice when China's corporate giants seek listings, say analysts.

ICBC's phenomenal success comes hot on the heels of other successful IPO sales from the Bank of China, China Construction Bank,Tianjin Port Development and the shipping giant China Cosco.

Massive demand from the city's legions of small investors and huge orders from institutions around the world meant ICBC shares were sold out almost as soon as they were put on sale. In the end, investors both big and small were resolving to buy more shares once they started trading on the market because they couldn't get enough in the IPO.

This meant that the blue chip Hang Seng Index was able to set a series of six-year highs and get within touching distance of its record high while the ICBC sale was underway.

Market indicator

"The success of the ICBC IPO has totally reflected how healthy the market is and how much funds there are in the market," said Peter Lai, head of institutional sales at DBS Vickers Securities in Hong Kong.

ICBC sold a total 35.4 billion shares in Hong Kong and a smaller number, 13 billion, in Shanghai in the first ever simultaneous listing in the two markets.

In Hong Kong nearly one million small investors, or about one in seven of the population, placed HK$411 billion (US$52.8) billion in orders for the retail tranche of shares while institutions piled up an astonishing HK$2.3 trillion (US$300 billion) in orders. No wonder the bank chose to price its shares at HK$3.07 (US 40 cents), the top end of the indicated price range.

The heavy orders for Hong Kong's institutional tranche, which was the first to go on sale, overcame investor nerves in Shanghai and helped it become a big success too. With investors hungry for more of ICBC, which offers a direct play on China's fast-growing economy, the stock rose 15 per cent on its October 27 debut.

ICBC's final tally of funds raised will likely be HK$170 billion (US$21.8 billion) if 15 per cent over-allotment options are exercised as expected in Hong Kong and Shanghai. The previous world record for fund raising was held by the IPO of Japan's NTT DoCoMo, which raised HK$ 142 billion (US$18.3 billion) in 1998.

Growth story

ICBC's management was able to put across a good picture of the bank's potential to expand, rather than letting investors worry about historic problems with bad loans when its lending was directed by government officials, said Francis Lun, general manager of Fulbright Securities in Hong Kong.

"The growth story is what everybody is talking about. This is the biggest bank in China and you shouldn't look at what happened in the past. China could be the world's biggest economy in 20 to 30 years and ICBC has a 30 per cent market share of the banking business, that's the story they are selling."

In the end, it was easy "because there's a lot of overseas funds flowing into the Hong Kong market", said Kenny Tang, associate director Tung Tai Securities.

The city is open to capital flows and has close links to China, which only allows in a small amount of foreign portfolio money. That means Hong Kong is the best and easiest way for foreign investors to tap into China's fast growth and appreciating currency, the yuan, added Mr Tang. ICBC was the fifth Chinese bank to list in the last 16 months on the market.

"Listing in Hong Kong isn't just about raising money, it also helps the companies to restructure and lift their quality," said Mr Tang.

Within a few months ICBC should be included in important stock indices like the MSCI series, FTSE World indices and the Hang Seng Index, making it an essential buy for institutional investors who don't want to stray too far from the benchmarks, said Steven Leung, director of institutional sales at UOB KayHian Securities.

That should mean ICBC's huge presence on the Hong Kong market will add yet another reason why foreign capital will keep flowing into the city.