Bank of China Ready to Launch $9.9B IPO

Two men walk past the dazzling building of the Bank of China in Hong Kong Friday, May 19, 2006. Hundreds of thousands of other Hong Kongers flocked to bank branches during the past week to pick up forms for the June 1 listing on Hong Kong's stock market. They're ready to bet that the No. 2 bank in China's booming economy will be a great investment. (AP Photo/Kin Cheung) (Kin Cheung - AP)

HONG KONG -- Office worker Carol Au scurried out of the Bank of China's dazzling skyscraper in central Hong Kong with a subscription form to buy shares in the lender's $9.9 billion initial public offering _ slated to be the world's biggest IPO in six years.

The 28-year-old was like hundreds of thousands of other Hong Kongers who flocked to bank branches during the past week to pick up forms for the June 1 listing on Hong Kong's stock market. They're ready to bet that the No. 2 bank in China's booming economy will be a great investment.

But Au was also aware of the risk of investing in a bank with a history of bad loans and corruption. The bank's former chairman and president Wang Xuebing is serving a 12-year prison term for taking bribes.

"I'll just be buying a little bit at first so it's not too risky," Au said as she rushed off to work clutching the bank's prospectus, as thick as a big city's telephone book.

One of the factors feeding the frenzy for Bank of China is the remarkable success two other big Chinese lenders that had IPOs in Hong Kong last year.

The share price for China Construction Bank, the nation's No. 4 lender, has shot up 50 percent since its IPO in late October. Bank of Communications, the fifth-largest, has nearly doubled since it hit the market in June.

Agnes Deng, investment director at Standard Life Investments in Hong Kong, said the banks look like a good long-term investment.

"Bank of China will benefit from financial reform in China and will benefit from the consumer loan growth as well as benefit from a lot of the foreign investment coming into China," she said.

Launching IPOs for state-owned banks in overseas capital markets is key to China's plan to clean up its financial system. For decades, the big banks have been plagued with poor governance, graft and bad loans to clunky state-owned enterprises that squandered the money as they asked for more.

Bank of China had one of the worst records. To prepare the lender for its IPO, the government pumped $22.5 billion into the bank to clean up bad loans. The bailout reduced the bank's non-performing-loan ratio to 4.4 percent in mid-2005, from a whopping 33.41 percent in 2003, Fitch Ratings said.

At a recent news conference that served as a big pitch for the IPO, the bank's leaders briefly acknowledged that the institution has had troubles. But they said the bank's history, mammoth size and reform efforts gave it the brightest future.

"Bank of China has gone through a lot in the past few years. I would just describe our current IPO process as being at the right place at the right time," chairman Xiao Gang said at a video conference in which his image was projected on a huge white map of the world.