Oct. 27 (Bloomberg) -- Industrial & Commercial Bank of China Ltd.'s shares jumped 15 percent in their first day of trading, making it the world's fifth-largest bank with a market value of almost $157 billion.

Investors, including Hong Kong billionaire Li Ka-shing, sought to buy 26 times as many shares as Beijing-based ICBC sold in the world's biggest initial public offering. They're betting ICBC, which has more customers than Russia has citizens, will generate lucrative profits in the fastest-growing major economy.

Chinese banks have raised more than $40 billion from IPOs since the middle of last year, including ICBC's sale of a 15 percent stake to the public for $19.1 billion. The stock closed at HK$3.52 in Hong Kong, up from the IPO price of HK$3.07. The bank's shares also gained in Shanghai.

The country's financial services industry ``should be a very attractive sector, but the banks have pretty significant bad loans they have to work through,'' said William Wells, head of Memphis, Tennessee-based Pope Asset Management, which oversees $450 million for clients.

China has spent 3.5 trillion yuan ($444 billion) bailing out banks since 1998, according to New York-based credit-rating company Moody's Investors Service. ICBC was formed in 1984 from the central bank's lending and deposit-taking operations. It made bad loans to money-losing state-owned enterprises and was recapitalized in 1998 and 2005.

Bad Loans

Bad loans at ICBC represented 4.1 percent of the bank's total lending as of June, down from a high of 34 percent in 2000. China's banking regulator has required the five biggest state- owned banks to cut non-performing loans to less than 5 percent.

ICBC sold shares at a price equal to 2.23 times estimated book value, compared with 2.36 times for Bank of China Ltd., the nation's second-largest lender. China Construction Bank Corp., the nation's fourth biggest, trades at 2.59 times book value.

After selling shares, ICBC's market value trails the $165.6 billion of New York-based JPMorgan Chase & Co.

ICBC, which holds 17 percent of the nation's $5.2 trillion of banking assets, sold 35.4 billion shares at the top of the range marketed to investors in Hong Kong and 13 billion shares in Shanghai in the nation's first simultaneous IPO. ICBC's sale eclipsed the $18.4 billion NTT DoCoMo raised in 1998.

Goldman's Gain

The first-day stock gains give Goldman Sachs Group Inc., the world's most profitable securities firm, a paper gain of $4.9 billion from its investment in ICBC. Goldman and investors in its private equity funds paid almost $2.58 billion in April for 16.48 billion shares of ICBC.

The share sales mark a ``milestone'' in ICBC's development, Chairman Jiang Jianqing said at a ceremony today in Hong Kong. ``We will create a company with the highest standards in workflow and service, with growth prospects that are strong and sustainable.''

China is pushing its biggest banks to sell shares to improve corporate governance as overseas investors demand tougher international accounting rules and tighter stock market regulation. ICBC has improved its information-technology systems by installing a computer network linking its 18,000 branches across the country.

ICBC expects net income to rise 26 percent in 2006 to 47.2 billion yuan, based on international accounting standards. A four-year investment boom has powered China's annual economic expansion of 10 percent, double the global average. New yuan lending by China's banks rose 50 percent in the first half from a year earlier.

ICBC plans to use proceeds from the IPO to replenish capital and fund expansion. The bank estimates it will pay out 45 percent to 60 percent of its earnings as dividends in 2007 and 2008.

To contact the reporter on this story: Luo Jun in Beijing at jluo6@bloomberg.net

Last Updated: October 27, 2006 09:58 EDT