Summary
1. Investors expressed strong enthusiasm towards the biggest IPO ever in history of ICBC.
2. Targeted overseas acquisition is a rational step to expand ICBC's international market.
3. ICBC's corporate governance is expected to be tightened after the IPO.
Analysis
The biggest IPO in history, of Industrial and Commercial Bank of China, debuted last Friday simultaneously on Hong Kong Stock Exchange and Shanghai Stock Exchange.
To ICBC’s H shares (1398.HK), international institutional investors have showed so much more enthusiasm. One of my best friends, who’s been in the project during the past year came back early last week from the road show, accompanying the ICBC’s President and other senior management to Hong Kong, Dubai and major cities in U.S. She shrugged off her jet lag by telling me vividly some highlights on the road. It was such a relief mentally, if not physically, from the first day of road show as the institutional investors expressed hyper-enthusiasm to ICBC's IPO trying to get allotment and the institutional tranche was already 3 times oversubscribed just on that one day. She laughed that in Dubai a keen Arabian investor even carried a gift on his shoulder into the conference room: wool carpets. What a hilarious experience for her, after months of unstoppable hard working.
Institutional investors’ oversubscription reached 41 times and its retail tranche of the IPO is more than 76 times oversubscribed. Last month’s the China Merchants Bank’s (3988.HK) IPO was 51 and 266 times oversubscribed for institutional and individual investors. June’s the Bank of China’s IPO was 69 times oversubscribed, China Construction Bank (0939.HK) 43 times a year ago on retail tranche, and Bank of Communication (3328.HK) 20 and 205 times from institutional and retail tranches upon its IPO in July of last year. Up to now, three of the big-Four state banks, except Agricultural Bank of China, have been successfully listed in HKEx, along with aforementioned CMB and BoComm., which maybe the best two non state-owned banks.
ICBC has already completed one of the most important milestones in its history. After such happy waves calm down, I am expecting a couple of substantial movements by ICBC. First of all, considering it the biggest commercial bank in China while with limited international presence compared to Bank of China, overseas acquisitions with freshly raised capital is an effective method to gain targeted market and customers. I assume that Asia and US are naturally the targeted markets. Secondly, some management change within ICBC may be under brewing. Hey, what are you talking about here? Does anybody still recall the scandal in Shanghai last month, whose party chief Chen Liangyu was alleged of involvement in the misuse of billions of Yuan of social-security money? ICBC’s Shanghai Branch offered more than 6.5 billion (in RMB) to the related trouble company and also helped to issue the corporate debts, which now are junk ones. But Chen's case may just be the tip of the iceberg. There is a famous Chinese saying: to revenge after the autumn. Even though ICBC keeps silent on this matter towards media by now and only disclosed in its final version of prospectus, I am pretty confident that it will tighten its corporate governance by cleaning up the mess in Shanghai after the IPO honeymoon. It is late autumn now in Beijing.
