Global Capital Markets

Industrial and Commercial Bank of China
In October 2006, the Industrial and Commercial Bank of
China, or ICBC, successfully completed the world�s larg-
est ever initial public offering (IPO), raising some $21
billion. It beat Japan�s 1998 IPO of NTT DoCoMo by a
wide margin to earn a place in the record books (NTT
raised $18.4 billion in its IPO). The ICBC offering fol-
lowed the IPOs of a number of other Chinese banks and
corporations in recent years. Indeed, Chinese enterprises
have been regularly tapping global capital markets for
the last decade, as the Chinese have sought to fortify the
balance sheets of the country�s largest companies, to im-
prove corporate governance and transparency, and to give
China�s industry leaders global recognition. Since 2000,
Chinese companies have raised more than $100 billion
from the equity markets. About half of that came in 2005
and 2006, largely from the country�s biggest banks. Shares
sold by Chinese companies are also accounting for a
greater share of global equity sales�around 10 percent in
2006 compared to 2.8 percent in 2001, surpassing the
total amount raised by companies in the world�s second
largest economy, Japan.
To raise this amount of capital, Chinese corporations
have been aggressively courting international investors.
In the case of ICBC, it simultaneously listed its IPO
shares on the Shanghai stock exchange and the Hong
Kong exchange. The rationale for the Hong Kong list-
ing was that regulations in Hong Kong are in accordance
with international standards, while those in Shanghai
have some way to go. By listing in Hong Kong, ICBC
signaled to potential investors that it would adhere to
the strict reporting and governance standards expected
of the top global companies. The ICBC listing attracted considerable interest from
foreign investors, who saw it as a way to invest in the
Chinese economy. ICBC has a nationwide bank net-
work of more than 18,000, the largest in the nation. It
claims 2.5 million corporate customers and 150 million
personal accounts. Some 1,000 institutions from across
the globe reportedly bid for shares in the IPO. Total or-
ders from these institutions were equivalent to 40 times
the amount of stock offered for sale. In other words, the
offering was massively oversubscribed. Indeed, the issue
generated total demand of some $430 billion, almost
twice the value of Citicorp, the world�s largest bank by
market capitalization. The listing on Hong Kong
attracted some $350 billion in orders from global inves-
tors, more than any other offering in Hong Kong�s
history. The domestic portion of the stock sales, through
the Shanghai exchange, attracted some $80 billion in
orders. This massive oversubscription enabled ICBC to
raise the issuing price for its shares and reap some $2 bil-
lion more than initially planned. 29
�Why did ICBC feel it was necessary to issue equity in markets outside of China? What are the advantages of such a move? Can you see any disadvantages?
�What was the attraction of the ICBC listing to foreign investors? What do you think are the risks for a foreigner associated with investing in ICBC?