Oct. 11 (Bloomberg) -- Agricultural Bank of China, saddled with $100 billion of bad loans, may move some of its 14,500 rural branches to independent companies to speed up a government bailout and sell shares for the first time.

The nation's fourth-largest bank, established in 1979 to serve China's 800 million farmers, plans to reduce its ownership in unprofitable offices to trim delinquent debt, according to a draft of a government proposal obtained by Bloomberg News.

China has spent about $500 billion bailing out its biggest lenders over the past decade. The three largest -- Industrial & Commercial Bank of China Ltd., Bank of China Ltd., and China Construction Bank Corp. -- raised a combined $53 billion selling shares in the past two years. Agricultural Bank's cleanup has been delayed because 23 percent of its loans aren't getting paid, according to its latest annual report.

``It allows the restructuring to proceed quickly to the next stage,'' said Liao Qiang, a Beijing-based analyst at Standard & Poor's. ``There are still uncertainties about any responsibility to aid subsidiaries suffering difficulties.''

The Ministry of Finance and China Investment Co., an agency set up last month to manage $200 billion of the nation's foreign exchange reserves, would each own a third of Agricultural Bank, the document said. Another 20 percent would be sold to foreign investors that have experience with rural lending, and about 5 percent to local corporate investors, according to the document. The remainder would be offered to the public.

Bank IPOs

The 15-page draft proposal, which is being reviewed by the State Council and was translated by Bloomberg News, didn't say who will take stakes in the new companies that own the branches. Agricultural Bank spokesman Liu Hengbao said he's unaware of the document. Lou Xiaohui, a spokeswoman for the finance ministry, declined to comment.

Agricultural Bank had almost 500,000 employees and 25,000 branches at the end of last year. That compares with 351,000 workers and 18,000 outlets for ICBC, the country's third-largest company by market value, whose assets are 42 percent bigger than those of Agricultural Bank.

Construction Bank became the first of the nation's four largest to go public in October 2005, raising $9.2 billion. Bank of China followed with an $11.2 billion IPO in June 2006 and ICBC set a world record with its $22 billion sale a year ago.

Shares of Construction Bank tripled from their IPO price, while ICBC stock more than doubled and Bank of China rose 57 percent. The Beijing-based lenders are now among the six largest globally by market value. ICBC's market capitalization of $328 billion exceeds Citigroup Inc.'s $235 billion.

$200 Billion Bailout

Agricultural Bank's bad-loan ratio is four times the average of its Chinese rivals, according to data from the industry regulator and annual reports. Its cost-to-income ratio exceeds 50 percent, compared with about 40 percent at competitors.

Standard & Poor's estimates the government may have to spend $200 billion to bail out the company by removing bad loans and injecting capital. That's almost double what China spent recapitalizing ICBC in 2005.

China's cabinet decided in December to keep Agricultural Bank whole rather than break it up to preserve financial services to farmers. The new proposal would allow the government to keep its commitment and the bank would remain the biggest shareholder in its local network.

Cutting Costs

China has 1.26 bank outlets in rural areas for every 10,000 residents, compared with two in cities.

By separating offices in cities from rural areas and reorganizing 7,250 branches, Agricultural Bank can reduce employees and cut as much as 11 billion yuan ($1.5 billion) of costs a year, the proposal said. The firm earned 5.8 billion yuan in 2006.

The company would keep rural branches in more profitable areas. Those in the less-developed northeastern region near North Korea, the Midwest and the least-developed western parts close to Nepal, will become independent, according to the document.

Rural operations contribute ``very little'' to profit, Vice President Han Zhongqi said at a press conference in February. The restructuring proposal said the independent banks in the countryside will receive government support, without being more specific.

To contact the reporter on this story: Philip Lagerkranser in Hong Kong at lagerkranser@bloomberg.net

Last Updated: October 10, 2007 12:20 EDT