Finding out what it's like to be part of the world’s biggest IPO
When the former state-owned Industrial and Commercial Bank of China (ICBC) floated in October last year, investors from around the world turned out in their droves to get a piece of the action. Some $22 bn worth of shares were snapped up within hours as institutional investors placed $350 bn in orders for the stock.
And it wasn’t just institutional investors that were keen to get on the bandwagon. The Hong Kong part of the ICBC listing drew the largest number of orders ever from retail investors, totaling in excess of $52.8 bn. According to various newspaper reports, around one in seven of Hong Kong’s total population placed orders for the stock.
A very different proposal
Aside from the ferocious appetite of investors, this really was an IPO with a difference. Not content with having to comply with one set of listing requirements, the Chinese bank plumped for a dual IPO, floating on both the Shanghai and Hong Kong stock exchanges.
‘There are differences between the rules applied by the Hong Kong and Shanghai stock exchanges,’ comments Pan Gongsheng, secretary to ICBC’s board and responsible for IR at the bank.
Before conducting the IPO, the firm researched the benefits of listing on several global exchanges, including the NYSE and the London Stock Exchange (LSE). ‘When deciding where to launch, we considered a lot of factors, including the liquidity in each market, the coverage and the cost,’ says Pan.
After considering all these factors, the bank decided to opt for the dual listing. While Hong Kong is a natural listing choice for many Chinese companies, the bank felt it would benefit further from a presence on a mainland China stock exchange.
‘The capital markets in Hong Kong are well developed, there are lots of corporate governance requirements, liquidity is very good and the market is covered by investors all around the world, so for a large mainland China firm it’s one of the best choices,’ Pan explains. ‘In addition, a lot of our clients are from mainland China and the Chinese capital markets are maturing very quickly.’
It seemed a hugely ambitious gamble, but it appears to have paid off – and now Pan and his colleagues at ICBC expect other Chinese companies to follow suit. ‘We have passed the one-year anniversary and the joint listing has proved to be a very wise decision,’ he says. ‘Our IPO has also helped to lay a solid foundation for future IPOs.’
ICBC is one of the four largest state-owned commercial banks in China, and the largest commercial bank in China in terms of total assets, so going public was no mean feat. Fortunately for the bank, it had a lot of support from the Chinese authorities. ‘During the whole IPO process, the financial regulator gave us its full support, which was very important to our success,’ Pan recalls.
Currently, approximately 25 percent of ICBC’s shares are H-shares listed in Hong Kong, with a significant proportion of the Hong Kong allocation held by international investors, both institutional and regional. The rest are A-shares listed on the Shanghai Stock Exchange.
While the Chinese Ministry of Finance and Central Safe Investment (Huijin) hold a combined 70 percent controlling stake, the international shareholder base means Pan and his team have to be available around the clock. ‘We have attached great importance to our international investors,’ says Pan. ‘We have a very high frequency of communication with them and they are very satisfied with our IR work. We also hold big conferences and invite investors from all around the world. I spend around 50 percent of my time meeting analysts, investors and journalists.’
Pan enjoys substantial support from both senior management and divisional heads. ‘We have built a strong IR team consisting of the chairman, members of the senior management team and the heads of major departments such as finance and risk management,’ he points out. ‘I am responsible for the day-to-day coordination of IR work and I also have a support team of 11 people.’
Not all plain sailing
As well as the obvious upsides, complying with two sets of regulations undoubtedly creates difficulties. ‘The Hong Kong market has developed a whole raft of corporate governance requirements that are very similar to stringent international practices,’ says Pan.
But he believes the requirements in mainland China are fast catching up. ‘In the last few years, the Chinese government has attached great importance to the corporate governance of listed companies,’ he explains. ‘It is hard to say which market is more rigorous.’ He points to the fact that in Shanghai, all companies must file on a quarterly basis, ‘but in Hong Kong listed companies need report on a six-month interim basis only.’
Not content with staging one of the most sought-after IPOs, ICBC again demonstrated its ambition for global supremacy by purchasing a 20 percent stake in Africa’s biggest bank by assets, South Africa’s Standard Bank.
For the time being, at least, all eyes in the West are likely to be on China as this astonishing growth story plays out.