UPDATE 4-Subdued AgBank debut dampens China fundraising outlook

* AgBank Shanghai shares rise smaller-than-expected 1 pct

* Could still raise world record $22 bln with overallotment

* Seen as bellwether of demand for bank fundraisings

* Stock rivals CCB for 3rd biggest weighting in index

* HK listing follows Friday; small gains expected
(Updates share price to afternoon, adds reaction, detail)

By Samuel Shen and Jason Subler

SHANGHAI, July 15 (BestGrowthStock) – Agricultural Bank of China’s
(601288.SS: ) record $22 billion IPO made a lacklustre debut in
Shanghai, underscoring the challenges ahead for China’s markets
as other big banks look to tap investors for billions of
dollars.

AgBank’s listing completes its transformation from
technical insolvency to a sprawling giant with assets of close
to $1.4 trillion as of March and a customer base of 320
million, larger than the population of the United States.

However, it comes against the less-than-ideal backdrop of a
stock market that has been the world’s second-worst performer
this year after Greece, questions over economic growth and
rival banks returning to capital markets to supplement their
coffers after a state-decreed lending spree last year.

“There’s a lot profit-taking pressure from investors, who
are not optimistic about the long-term prospects of China’s
economy or the banking sector,” said Liu Jun, analyst at
Changjiang Securities in Wuhan.

“The debut reflects worries over slower growth and rising
bad loans at Chinese lenders, and continued weakness in the
stock may prompt a renewed slump in the overall market.”

AgBank shares were up 0.8 percent to 2.70 yuan ($0.40) in
afternoon trade, versus its IPO price of 2.68 yuan.

Analysts surveyed by Reuters had expected the stock to gain
about 5 percent or less. The Hong Kong shares (1288.HK: ) list on
Friday and are seen making similarly modest gains.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For TAKE A LOOK on AgBank [ID:nSGE65307X]

StarMine comparative data http://r.reuters.com/jan46m

FACTBOX on China’s AgBank [ID:nTOE65308J]

Graphic comparing China banks:

http://link.reuters.com/vah95m

For Reuters Insider clip on China capital raisings:

http://link.reuters.com/heh67m

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LOW KEY APPROACH

AgBank, which is aiming to raise a record $22 billion after
exercising an overallotment option, took a low-key approach to
its listing, not opening the debut ceremony to foreign media.

Chairman Xiang Junbo, a former soldier and scriptwriter,
marked the occasion by giving a crystal model of AgBank’s
Beijing headquarters to the head of the Shanghai Stock
Exchange, who gave Xiang a bronze opening gong in return, live
television pictures showed.

Investors around the country watched the debut of the last
of China’s “Big Four” lenders to go public closely, looking for
signs of whether the beleaguered stock market might find relief
after shedding about a fourth of its value so far this year, in
part because of jitters over the massive AgBank offering.

At one brokerage in downtown Shanghai, individual
investors, many of them retirees, swapped theories on how much
the government was controlling the stock market while watching
with disappointment as AgBank’s share price failed to take off.

“Apparently, investors think the AgBank IPO was overvalued,
and the only reason it isn’t falling is that it’s a political
task to keep it above the IPO price,” said Qiu Zhicheng, an
analyst at Guosen Securities Co in Shanghai. “This is not good
for other banks’ fundraisings going forward.”

However, some retail investors looked to AgBank’s modest
day-one performance as a positive sign for the long run.

“A debut like this means the stock price will soon choose a
direction, and I think it’s more likely to rise,” said Tony
Shu, a lawyer who bought 20,000 shares, worth around $8,000, in
the IPO. “I won’t sell AgBank until it reaches 3 yuan, which I
think is very possible,” he said.

The lacklustre debut for China’s third-largest bank by
assets weighed on other banking stocks, despite encouraging
economic data that showed inflation stayed in check in June.
The main stock index (.SSEC: ) fell 0.3 percent in afternoon
trade. [ID:nTOE66D06L] [.SS]

AgBank has about a 5 percent weighting in the index,
putting it neck-and-neck with China Construction Bank (CCB)
(601939.SS: ) as the index’s third-biggest component.

A weak performance in its first days of trade could bode
ill for upcoming fundraisings by peers including Industrial &
Commercial Bank of China (ICBC) (0349.HK: )(601398.SS: ) and Bank
of China (3988.HK: )(601988.SS: ), who are returning to capital
markets to raise tens of billions of dollars to supplement
their capital.

The “Big Four” will have a market capitalisation of roughly
$680 billion if AgBank exercises its overallotment options,
more than Turkey’s gross domestic product last year.

FUNDRAISINGS IN FOCUS

AgBank’s debut achieved a much smaller price gain than its
rival banks, whose shares jumped up to one-third in their first
day of trading in Shanghai. After exercising its
over-allotment, ICBC raised $21.9 billion in its October 2006
listing, which stands as the world largest IPO to date.

AgBank, founded by Mao Zedong in 1951 and which now has
some 441,000 employees in more than 23,000 branches, has said
it would grow at a faster pace than its major rivals, reporting
on Tuesday a 40 percent jump in first-half net profit.

The bank which was technically insolvent just three years
ago and had non-performing loans of around 24 percent. It sold
22.2 billion yuan-denominated shares in Shanghai at the top of
an indicated range, while the Hong Kong deal priced in the
middle of its original range.

It is expected to pay a total of $248 million in fees to
the firms that handled its IPO, the lowest underwriting payout
of any of the Big Four.

AgBank sold 40 percent of the Shanghai offering to 27
strategic investors including China Life Insurance (2628.HK: )
(601628.SS: ) and China State Construction (601668.SS: ). They are
subject to lock-up periods of 12-18 months.

Eleven cornerstone investors have been selected for its
Hong Kong share offering, including Qatar Investment Authority
and Kuwait Investment Authority, taking a combined $5.45
billion worth of shares.
($1=6.77 Yuan)

UPDATE 4-Subdued AgBank debut dampens China fundraising outlook