The Fake Exuberance

October 8, 2006 at 9:44 pm (China, Economics, Finance)

By a $19.1 billion IPO, Industrial & Commercial Bank of China is going to break the world IPO record made by NTT 8 years ago. This is just another stunning miracle among China’s recent IPO crazes.

China’s stock market is one of the best performer this year in Asia. At the same time, it’s also one of the worst regulated and the most manipulated.

One of the driving forces behind the recent surge is the floating of the state-owned shares, which were originally held by governments and were later forced to circulate on the market to make listed companies real public companies. This is a significant step China has taken to correct its distorted equity market.

So far the whole floating reform has been ostensively successful. But behind it is another round of manipulation and false exuberance. Market manipulators took advantage of the big news to push up stock prices. They can’t hold the prices at high level permanently. Their purpose is to sell stocks to some fools who bet on a further hike. That’s not going to happen though. And when the manipulators start to sell, the market will collapse.

Companies are exploiting the transitory zest to sell their shares at high prices and to collect large amounts of cash. Someday, someone will suffer badly from this furor. Saddled with endless scandals and bottomless bad debt, China’s state owned banks are just simply not worth to invest in.


From Bloomberg News

ICBC Seeks as Much as $19.1 Billion in Biggest IPO (Update1)

By Cathy Chan

Oct. 8 (Bloomberg) — Industrial & Commercial Bank of China Ltd., the nation’s biggest by assets, plans to raise as much as $19.1 billion in the world’s largest initial public offering, four people involved in the sale said.

Beijing-based ICBC plans to offer 35.4 billion shares at HK$2.56 to HK$3.07 apiece, said the people, who declined to be identified before an announcement from the bank. The Beijing- based company also may sell 13 billion shares at 2.6 yuan to 3.12 yuan each in Shanghai, they said. The top end of the range is subject to final discussion, the people said.

The IPO probably will exceed the $18.4 billion that Japan’s NTT DoCoMo Inc. raised in 1998. Chinese banks, including China Merchants Bank Co. and China Construction Bank Corp., have attracted $27.7 billion from share sales in the past 15 months. Shares of Shanghai-based Bank of Communications Co. more than doubled since its IPO in June 2005.

“People buy Chinese banks because they’re optimistic about the wider economy, not because they have any individual allure,” said Pauline Dan, who helps manage $1.5 billion at Manulife Asset Management in Hong Kong.

The initial price range of ICBC represents between 1.95 times and 2.23 times its 2006 book value, the people said. Bank of Communications, by contrast, trades at 2.32 times its 2006 book value and Construction Bank is trading at 2.49 times.

Pushing Banks

The government has been pushing banks to tighten lending controls to escape a legacy of corruption that saddled the industry with $262 billion of bad debt as of March 2004. Bad loans represented 4.1 percent of ICBC’s total in June, down from 4.7 percent at the end of last year. China Banking Regulatory Commission said the country’s five biggest banks should cut bad loans to less than 5 percent.

ICBC’s simultaneous offerings in Hong Kong and China will eclipse the $13.7 billion that Bank of China raised in two sales in May and July this year. The bank’s stock is scheduled to start trading in Hong Kong and Shanghai on Oct. 27.

The bank last year received a $15 billion bailout from the government that helped it reduce bad loans, and this year sold a 10 percent stake for $3.78 billion to a group including Goldman Sachs Group Inc.’s GS Capital Partners V fund, Allianz AG and American Express Co.

Merrill Lynch & Co., China International Capital Corp., Credit Suisse Group, Deutsche Bank AG and ICEA Securities are handling the global share offering. Underwriters for the domestic sale are China International Capital Corp., Citic Securities Co., Guotai Junan Securities Co. and Shenyin & Wanguo Securities Co.

ICBC Earnings

ICBC may earn 55.2 billion yuan ($6.9 billion) in 2006, up 47 percent from a year earlier, based on international accounting standards, according to analysts estimates from Deutsche Bank.

The following is a table of the 10 largest global IPOs, according to data compiled by Dealogic and Bloomberg. The list excludes rights offerings, domestic sales and tenders. The size is taken from exchange rates at the time of the sale and includes over-allotment options that were exercised.


Company Country Year Size
NTT DoCoMo Japan 1998 18.4
Enel SpA Italy 1999 17.0
Deutsche Telekom AG Germany 1996 13.0
Bank of China Ltd. China 2006 11.2
OAO Rosneft Russia 2006 10.6
AT&T Wireless U.S. 2000 10.6
Telstra Corp. Australia 1997 10.0
China Construction Bank Corp. China 2005 9.2
Kraft Foods Inc. U.S. 2001 8.7
Telia AB Sweden 2000 8.6


1 Comment

  1. noonoob said,

    nice article , thank you

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