Agricultural Bank's IPO had a lacklustre debut, which analysts attributed to stock market jitters and investor concern that a slowdown in China's property market may lead to a spike in bad loans. The Hong Kong portion was only five times oversubscribed - significantly less than rival banks - and the bank's shares only rose 2.2% on their trading debut. Anticipating weak global demand, the bank's underwriters worked hard to secure early investors and gave top treatment to mutual funds that made early commitments.
The bank's overallotment option allows additional shares to be issued by Agricultural Bank's underwriters after an offering has been priced. In Agricultural Bank's case, it will make the difference between first and second place on the world's largest IPO list. The bank has oversold the Shanghai leg of its IPO by 15% - the amount the bank said it was willing to allocate in the form of a greenshoe option. It has not commented on the Hong Kong leg.
A number of Chinese banks, including ICBC and Bank of China, are planning to fundraise later this year, as banks are keen to maintain their capital ratios after record lending last year. However, Agricultural Bank's IPO raises questions about whether there is enough demand in the market.
