Global Capital Markets

Industrial and Commercial Bank of China

In October 2006, the Industrial and Commercial Bank of

China, or ICBC, successfully completed the world?s larg-

est ever initial public offering (IPO), raising some $21

billion. It beat Japan?s 1998 IPO of NTT DoCoMo by a

wide margin to earn a place in the record books (NTT

raised $18.4 billion in its IPO). The ICBC offering fol-

lowed the IPOs of a number of other Chinese banks and

corporations in recent years. Indeed, Chinese enterprises

have been regularly tapping global capital markets for

the last decade, as the Chinese have sought to fortify the

balance sheets of the country?s largest companies, to im-

prove corporate governance and transparency, and to give

China?s industry leaders global recognition. Since 2000,

Chinese companies have raised more than $100 billion

from the equity markets. About half of that came in 2005

and 2006, largely from the country?s biggest banks. Shares

sold by Chinese companies are also accounting for a

greater share of global equity sales?around 10 percent in

2006 compared to 2.8 percent in 2001, surpassing the

total amount raised by companies in the world?s second

largest economy, Japan.

To raise this amount of capital, Chinese corporations

have been aggressively courting international investors.

In the case of ICBC, it simultaneously listed its IPO

shares on the Shanghai stock exchange and the Hong

Kong exchange. The rationale for the Hong Kong list-

ing was that regulations in Hong Kong are in accordance

with international standards, while those in Shanghai

have some way to go. By listing in Hong Kong, ICBC

signaled to potential investors that it would adhere to

the strict reporting and governance standards expected

of the top global companies. The ICBC listing attracted considerable interest from

foreign investors, who saw it as a way to invest in the

Chinese economy. ICBC has a nationwide bank net-

work of more than 18,000, the largest in the nation. It

claims 2.5 million corporate customers and 150 million

personal accounts. Some 1,000 institutions from across

the globe reportedly bid for shares in the IPO. Total or-

ders from these institutions were equivalent to 40 times

the amount of stock offered for sale. In other words, the

offering was massively oversubscribed. Indeed, the issue

generated total demand of some $430 billion, almost

twice the value of Citicorp, the world?s largest bank by

market capitalization. The listing on Hong Kong

attracted some $350 billion in orders from global inves-

tors, more than any other offering in Hong Kong?s

history. The domestic portion of the stock sales, through

the Shanghai exchange, attracted some $80 billion in

orders. This massive oversubscription enabled ICBC to

raise the issuing price for its shares and reap some $2 bil-

lion more than initially planned. 29

?Why did ICBC feel it was necessary to issue equity in markets outside of China? What are the advantages of such a move? Can you see any disadvantages?

?What was the attraction of the ICBC listing to foreign investors? What do you think are the risks for a foreigner associated with investing in ICBC?