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)

The bank is China's oldest, founded in 1912 shortly after the fall of the last dynasty, the Qing. The bank's Hong Kong skyscraper _ designed by world renown architect I.M. Pei, whose father worked for the bank _ is one of the world's most stunning buildings, with its diagonal cross braces, triangular shapes and glass roofs.

The building's modern design jibes with the cutting-edge image the bank's leadership is trying to sell to potential investors.

Li Lihui, the bank's chief executive officer, told reporters in Hong Kong that the lender was the leader in many of the fastest-growing businesses _ like auto loans, which the bank is No. 1 with 32 percent of the market among the four biggest banks.

"Over the past two years, we accounted for approximately one-third of the new mortgage loans. We were the first and are the largest credit card issuer with a market share of 24 percent," Li said.

And he said there's plenty of room to grow as the world's most populous nation grows more affluent. He noted that there are only two credit cards per 100 Chinese, while in America there are 200 cards per 100 people.

"Bank of China is at the center of this personal banking boom," Li added.

But the bank will have some serious competition by the end of this year when China opens up its banking sector to foreign lenders, like HSBC Holdings PLC and Citigroup Inc. China agreed to eventually let in overseas banks when it joined the World Trade Organization in 2001.

Amid the hoopla of Bank of China's IPO, there are those who point out that serious risks are still lurking. A report by Lehman Brothers recently questioned whether the bad loan problem has been fixed.

The report by Rob Subbaraman and Wenzhong Fan said that government bailouts, IPOs and restructuring don't necessarily improve management and lending behavior.

Lehman Brothers also noted that China hopes that foreign investors will bring much-needed management expertise to the banks. But it's still unknown if the lenders will listen amid the "recent rise of nationalist sentiment about foreign stakes," the report said.

But these concerns probably won't scare off many investors, said Howard Gorges, vice chairman of South China Brokerage.

"People are not expecting to buy perfection, as long as they feel there's an improving trend underway, given the size of the Chinese economy and the scope of Bank of China within that. They're buying a piece of China," Gorges said.

The IPO on June 1 plans to raise $9.9 billion _ and eventually hit $11.4 with the greenshoe, or an extra 15 percent of shares that could be sold a few weeks after the IPO prices. That would make the listing the world's largest since a $10.6 billion IPO by AT&T Wireless Services Inc. on April 26, 2000.

The listing has been bolstered by major international investment firms that have already bought stakes in Bank of China. They include Royal Bank of Scotland Group PLC, Merrill Lynch & Co. and Temasek Holdings _ the Singapore government's investment arm.

Gorges said the heavyweights were enlisted in the early days of planning the IPO partly to boost the bank's credibility because of past scandals. But he said in hindsight, they weren't needed.

He said, "Frankly, in the markets we've had in the past six months, it hasn't been necessary to have any big names on board to sell an IPO in China."