Introduction
Bank of China Limited (BOC) is a state-owned commercial bank for the citizen of the China Republic. It is the second largest bank in China after the Industrial and Commercial bank of China, with its value estimated at £586 billion in asset. The bank was incorporated in 1912, which makes it the oldest in China. Since its establishment several decades ago, the bank has witnessed tremendous growth. This has enabled it to spread its brunches in many cities in China, as well as in foreign countries like the US, the UK, Japan, Canada, Germany, Singapore, Thailand, Russia, South Africa and Brazil, among others. The banks headquarters is located in Beijing, Xicheng District. The objective of this paper is to provide a report on the Bank of China’s IPO of 2006.
Background
Bank of China is said to have made a successful effort in reforming its shareholding base through consistent progression and right deployment right from the day it was founded. Nevertheless, its 2006 listing is perceived as a landmark move, which came about after many years of waiting. The success was due the bank’s efforts to improve its internal management. Other factors were the introduction of strategic investors, instituting strong internal control system that ensured efficiency in operation, as well as transforming the bank’s operation mechanism (Garnaut and Song 2006, p. 125-131).
Business and Operation
It all began on May 11, 2006, when the Bank kicked of an international IPO road show in Shangri-La Hotel, in Hong Kong. It is reported that the bank managed to raise a whooping HKD68.071 billion in the process. This encouraged the bank’s management to continue with their road show, which continued in other parts Europe, Asia, and America in a bid to raise more funds. At the end of the international road show, it was reported that the bank managed to rise over HKD75.427 billion, which was a record-breaking issue then. This made the IPO be considered a success, as it supposed the anticipated target. The bank reports that public offerings saw the company’s share being oversubscribed 76 times, and that the bank managed to freeze HKD 291.5 billion of its capital (Lague 2006).
It is also reported that, during the IPO, the Bank of China’s share ended up being oversubscribed by close to one million people in Hong Kong alone. When this figure is converted statistically in relation to the general population of adults above 18 years of age in Hong Kong, it would mean that, in every six Hong Kong adults, one subscribed to the Bank’s stocks. This even broke the record set by MTR stock of 2000, which saw slightly over half a million people subscribe to the company’s shares (Bank of China 2006).
The IPO Process
ICBC simultaneously carried out an H-share (global) offering in HKSE (HKD) and an A-share offering in SHSE (RMB). Specifically, the H shares were offered in the Hong Kong Public Offering and International Offering. As mentioned above, the offering prices for A-shares and H-shares would be the same having taken currency conversion (RMB and HKD) into account. “It was the first ever simultaneous IPO of two types of shares (H-shares and A-shares) in two different stock exchanges” (Bank of China 2006).
The official listing of the bank’s H-shares on Hong Kong stock exchange took place in 1 June 2006. The over HKD 75.4 billion funds raised from the public offering issued on this day is said to have been the largest ever stock to be issued in China and Asia as a whole with the exception of Japan. Data drawn from other parts of the world also confirmed this, because this IPO ranked fourth largest IPO ever seen in the whole world. In terms of the world’s banking industry, the Bank of China’s IPO is considered the largest (Bank of China 2006).
The IPO also happened to break a record on its first day of listing on June 1, 2006 since the trading volume of the day was estimated at more than HKD 20 billion more than any stock volume ever traded on the first day of trading. This was attributed to the fact the company’s shares was very high on demand because many Chinese citizens had a lot of confidence in the bank. In fact, it is reported that many people began cueing on Hong Kong’s pavements very early in the morning in a bid to subscribe to the bank’s stock. As the issue of the H-shares was ongoing, the bank was also in the process of issuing inquiry into the A-shares (Chapman, Xu and Peabody 2008, p.27-31).
It is reported that, one month after the successful listing of the company onto the stock exchange, it also managed to get a listing of its a-shares on the mainland market. It is argued that due top high demand for the A-shares by Chinese enthusiasts, the shares ended up trading so well which saw an offline placement draw 169 subscribers representing a lockup capital of RMB128.148 billion at 20 times oversubscription. Online subscription of the day hit about RMB 548.9 billion. The two combined translates to over RMB 660 billion, which the largest A-shares ever issued in Asian market (Bank of China 2006).
It is reported that the bank of China’s A-share also managed to get a listing on the shanghai Stock Exchange on July 5, 2006. This listing was also one of its kind in Shanghai’s since it was only the Bank of China that had managed to list its a-shares in their stock exchange. In fact, the prices of BOC’s A-share began trading on a positive note striking RMB 3.99 and increasing rapidly due to high demand for the shares. At the end of trading, it was reported that over 6.49 billion A-shares were issued which broke Shanghais domestic record. Bank of China (2006) revealed that, after the IPO, the bank’s share capital traded so well that it managed to trade over RMB253.86 billion. Out of this, 177.8 billion were A-shares, which represent RMB673.86 billion by market capitalisation. This bank of China’s market capitalisation is said to have exceeded by far the market capitalisation of the Shenzhen stock Exchange thereby making the BOC, the most expensive listed company by stock in both Shenzhen and Shanghai stock exchange (Bank of China 2006).
It is also noted that IPO issue helped in improving the company’s overall performs in terms of sales and profits as revealed the companies audited financial statements. For instance, in 2005 just before this public offer was made, the company operating income was only RMB 12, 5082, which rose to RMB 148,424 at the year ended 31 December 2012. The report also reveals that the operating profit of the bank rose from RMB 53,636 in 2005 to RMB 67, 305 in 2006. This huge increase in the operating income and profit is attributed to the 2006 IPO, which attracted many people to buy the company’s shares thereby improving the company’s overall turnover and profit (Bank of China (Hong Kong) Limited 2012).
Conclusion
What is certain is that the success of bank of China came about as a result of good management practices that saw its 2006 IPO break most the world’ initial public offering. For instance, it became the first domestic company ever to have its A-shares and H-shares listed in the market. It also became the first local company with the largest market capitalisation and IPO as well as negotiable instruments. This indeed set an example to the rest of the bank across the globe that it is possible. The bank managed to do this by establishing a strong governance mechanism as well as bringing together the Bank of China’s brand operation to as a means of gaining competitive advantage in the international market. This strategy did not only accomplish the banks desires, but also optimised the banks corporate governance structure as well as ensuring that the bank effectively diversified all the risks. Finally, the strategy will meet shareholder’s needs.
The question that begs in the minds of many economists now is whether another company from the region will ever break the Bank of China’s historical initial public offering of 2006. This remains to be seen as many banks in the region are certainly determined to improve their performance, which one day may see them emerge at the top.
References List
Bank of China 2006, Bank of China was successfully listed in Hong Kong and opened a new chapter in its one-hundred-year history. Web.
Bank of China (Hong Kong) Limited 2012, Daily bullion report. Web.
Chapman, JC, Xu, W & Peabody, N 2008, China IPOs-the era of transition, pp. 27-31.
Garnaut, R, & Song, L 2006, The turning point in China’s economic Development, ANU E Press, Beijing.
Lague, D 2006, Bank of China I.P.O. Raises $9.7 billion, New York Times.