One of the defining deals of 2010 will no doubt be Agricultural Bank of China’s long-awaited dual listing in Hong Kong and Shanghai. Not only did it manage to squeeze past Industrial and Commercial Bank of China (ICBC) to become the world’s largest-ever IPO at $22.1 billion, but it was also completed in just three months and resulted in a record pay-day for the investment banks involved. With three months having passed since the Hong Kong listing on July 16 and the share price up 30%, we decided to take a closer look at how the deal came together.
What we found was an IPO that was meticulously planned by the issuer to the extent that one has to wonder whether it can ever be replicated. The pace was set right from the start with the invitation to pitch for a mandate on the deal (the so called request for proposals, or RFP) sent out to the banks at about 5.30 pm on Good Friday (April 2) with a deadline for handing them back by the following Tuesday — a period that coincided with a five-day holiday in Hong Kong and a four-day break for Easter in most other financial centres. The face-to-face pitch meetings were scheduled to start the very next day.
The deal was no secret. The Beijing-based bank had received a formal IPO approval from the Chinese regulators at the end of March and it was expected to approach potential bookrunners in the early part of the second quarter. Consequently, several banks had already written their pitch documents and had people on stand-by for when the call would come. But most of them were still caught a bit off guard, not just by the timing of the RFP, but by the urgency in getting the process underway. After a busy first quarter, many bankers were taking the long weekend off to recharge when the invite from ABC showed up. At Morgan Stanley, the Easter weekend was being used for an upgrade of the computer system, which meant bankers had no access to their office network.
Of course, with rumours suggesting the IPO could be as big as $30 billion, holidays and family dinners were quickly cancelled and computers hot-wired to meet ABC’s tight deadline. Come the following Tuesday, 21 banks had submitted bids for a role on the H-share portion of the deal with another 10 or so going for the A-share. That group was narrowed down to nine banks when the kick-off meetings were held on April 15 and 16: Deutsche Bank, Goldman Sachs, J.P. Morgan, Macquarie and Morgan Stanley were named as bookrunners for the H-share tranche and Citic Securities, China Galaxy Securities and Guotai Junan Securities given the task of handling the A-share offering. China International Capital Corp, having been involved in the earlier restructuring of ABC, was mandated on both tranches.
The reason for the urgency in getting the RFPs back quickly became clear as the document included a timeline suggesting that ABC more or less wanted the deal done by July — basically leaving only two months for preparatory work, including getting the regulatory and listing approvals in place, signing up cornerstone investors and writing the prospectus. This would be an ambitious undertaking for any IPO, but for a deal this size it appeared all but impossible.
Add to that the challenge of dreaming up a marketing strategy for a lender that was widely perceived as a farmers’ bank, was still the weakest among the Big Four state-owned lenders and had not invited any foreign banks to come in as strategic investors to boost its reputation before the IPO. Four years ago when FinanceAsia took an in-depth look at ABC just ahead of ICBC’s record-breaking IPO, we chose as the cover image a tractor being pushed up a muddy hillside by a rather exhausted-looking banker accompanied by the headline “Uphill struggle”. At the time, ABC had a non-performing loan ratio of 26.2% and our story noted that the bank’s focus on the backward and impoverished agricultural sector had tempted many observers to marginalise it.
It is an ABC-sized understatement to say that a lot has changed since then. The bank undertook a massive restructuring — and enjoyed an even more massive lump of aid from the government, which turned $120 billion of non-performing loans into real assets and also contributed a $19 billion capital injection. Even those efforts did little to change the bank’s image in the media, which still preferred ABC’s old reputation as a national piggy bank for peasant farmers.
Having gained a thorough understanding of the capital markets, the IPO process and the potential risk factors during ICBC’s listing, Dr Pan had the confidence to take a very hands-on approach with ABC’s offering. To meet the tight timetable, he gave the investment bankers a detailed plan right from the start of when each project needed to be completed and made sure they didn’t stray from the task.
“The ICBC experience definitely was very helpful for me personally in dealing with such a jumbo project, but the success of ABC’s IPO should be attributed to the collective efforts and coordination at our bank, especially the chairman of the board, Xiang Junbo, and the rest of the senior management, the board members and the staff,” Dr Pan explained in an interview with FinanceAsia in Beijing recently.
Two big rooms on separate floors at ABC’s Beijing headquarters at No 69 Jianguomen Nei Avenue were converted into office space for the bookrunners, with one floor dedicated to those working on the H-share offering and the other for banks handling the A-share tranche. Each bank was given desk space and a few phones and for the next couple of months they had a core team in the building almost around the clock -- a must since ABC would call meetings with very little warning, sometimes no more than 15 minutes in advance, or ask for certain tasks to be completed within a very narrow time frame. “Today they asked for something to be done by 9pm tonight -- something that normally takes weeks,” confided one banker during the height of the preparations in early May.
In picking the timing of the listing, Dr Pan had been communicating with global economists and investment bankers since late 2009, trying to come up with a favourable market window. “Of course, even these well-known economists couldn’t tell for sure what the capital markets would look like in a month’s or a year’s time and I joked with them that it was like visiting a fortune teller,” Dr Pan said.
