The Qatar Investment Authority, the Gulf country’s sovereign wealth fund, agreed to invest $2.8 billion in Agricultural Bank of China Ltd.’s initial public offering to tap growth in the world’s third-biggest economy.
The $58 billion fund signed an agreement with Agricultural Bank on June 17, two people with knowledge of the matter said, declining to be identified because the deal is private. The bank has allocated more than $5 billion for corporate investors such as QIA in the Hong Kong part of its IPO, the people said.
Agricultural Bank, China’s largest lender by number of customers, is seeking to raise as much as $15 billion in the Hong Kong part of what may be the world’s largest IPO, according to an e-mail sent to investors last week. The Beijing-based lender may sell as much as $28 billion of stock in Hong Kong and Shanghai combined, exceeding the $22 billion sale by Industrial & Commercial Bank of China Ltd. in 2006.
Global economic growth “is very much in favor of the Bric countries,” Brazil, Russia, India and China, Abdul Kadir Hussain, chief executive at Mashreq Capital DIFC Ltd., said in a phone interview from Dubai yesterday. “I think that these sovereign wealth funds are just latching on to that trend.”
Standard Chartered Plc, the London-based bank that gets most of its profit from Asia, will invest about $500 million in the IPO, said a person with knowledge of the matter.
China’s economy, is forecast to grow 10 percent this year and by 9.9 percent in 2011, according to the International Monetary Fund. It will allow a more flexible yuan, the central bank said June 19, signaling an end to the currency’s two-year- old peg to the dollar a week before a Group of 20 summit.
Investing in China is part of QIA’s “diversification strategy,” Giyas Gokkent, chief economist at the National Bank of Abu Dhabi PJSC, the United Arab Emirates’ second-biggest bank by assets, said yesterday. Qatar, holder of the world’s third- largest natural gas reserves, will likely generate a trade surplus of $22 billion this year helped by oil and gas sales and some of that surplus will flow to the QIA, he said.
Kuwait Investment Authority, the Persian Gulf country’s sovereign wealth fund, is interested in Agricultural Bank’s initial share sale, Managing Director Bader al-Saad said June 13. Kuwait, the third-biggest oil producer in the Organization of Petroleum Exporting Countries in May, is likely to generate a trade surplus of $45 billion this year and “will be an exporter of capital this year,” NBAD’s Gokkent said.
The Qatar Investment Authority owns stakes in financial institutions including Credit Suisse Group AG and Barclays Plc. The fund bought Harrods Ltd. department store in London in May for 1.5 billion pounds ($1.9 billion) and a stake in Volkswagen AG last year. Barwa Real Estate Co., controlled by the fund, on June 18 agreed to buy Park House, an office and retail project on London’s Oxford Street, for 250 million pounds.
Qatar “is going to be a major player on global markets, both developed and emerging, for years to come,” Simon Williams chief economist for the Middle East at HSBC Holdings Plc said in a phone interview from Dubai yesterday. Regional sovereign wealth fund managers “will accumulate assets in traditional western markets and in emerging markets where they see value,” he said.
Agricultural Bank is pushing ahead with its offering after Europe’s sovereign debt crisis spurred more than 30 companies worldwide to postpone or withdraw IPOs globally since the start of May, according to data compiled by Bloomberg.
Corporate, or cornerstone, investors are guaranteed shares in IPOs in exchange for a pledge to hold the stock for a period of time. Companies use the cachet of the investors, who may be institutions, companies or billionaires, to drum up interest in their offerings among other potential buyers.
Agricultural Bank is reserving as much as 40 percent of the Shanghai part of the IPO to cornerstone investors, including the over-allotment, the company said on June 16. Such investors will be required to hold 50 percent of their stock for at least 12 months and the remainder for 18 months in exchange for a guaranteed number of shares, according to the filing.
Cornerstone investors may account for about 40 percent of Agricultural Bank’s Hong Kong sale, according to people with knowledge of the matter. ICBC, the world’s largest lender by market value, set aside 28 percent of the Hong Kong part of its October 2006 IPO for such investors, before exercising a so- called greenshoe option.
Hong Kong, Shanghai
Agricultural Bank is selling 25.4 billion shares in Hong Kong and 22.2 billion shares in Shanghai, according to a draft prospectus. It can expand the offer by 15 percent after excising an over-allotment option, the prospectus says.
Middle East sovereign-wealth funds may invest 25 percent of their new capital in the developing world by 2016 as economic growth there surges, George Pavey, a managing director at the global markets solutions group at Credit Suisse Group AG, said in November. Middle East funds were anchor investors in 2009 in the $3.3 billion initial public offering of Kuala Lumpur-based mobile phone operator Maxis Communications Bhd and the $1.79 billion IPO of property manager CapitaMalls Asia Ltd. of Singapore, which were managed by Credit Suisse, Pavey said then.
Abu Dhabi Investment Authority, one of the worlds’ largest sovereign wealth funds, raised investments in emerging markets where it sees greater growth opportunities, Sheikh Ahmed Bin Zayed Al-Nahyan, the fund’s late managing director told German daily Handelsblatt in January this year. Emerging market economies are likely to outperform those of developed economies over the medium-to-long term, he said then.
Sovereign wealth fund assets fell 3 percent to $3.8 trillion in 2009 as the funds invested $60 billion last year to buy assets mainly in Europe and North America, according to International Financial Services London. Sovereign wealth holdings funded by commodity exports, primarily oil and gas sales, stood at $2.5 trillion at the end of 2009, while non- commodity funds had $1.3 trillion.
Middle East funds have bought stocks in financial service companies. Abu Dhabi Investment Authority invested $7.5 billion in November 2007 to buy equity units in Citigroup Inc. Kuwait Investment Authority said in 2009 it purchased a $3 billion stake in Citigroup and a $2 billion holding in Merrill Lynch.