Asia-focused bank Standard Chartered Plc said it will invest $500m as a cornerstone investor in Agricultural Bank of China’s IPO in Hong Kong.
AgBank is seeking to raise more than $20bn in a Hong Kong and Shanghai IPO, and sources had previously told reporters that Standard Chartered would invest $500m.
The listing is expected to value AgBank at about $150bn. Standard Chartered will be buying just over two percent of the shares on offer in the IPO and will get a stake of about 0.3 percent in the enlarged bank.
The two banks have signed an agreement to develop new business opportunities together.
“For Standard Chartered, this deal has a lot of potential. However, the payback could be well into the future and more near term concerns over (the) Chinese economy slowing may weigh on Standard Chartered’s share price in the meantime,” said Bruce Packard, analyst at Seymour Pierce in London.
The bank, which is based in London but derives over four-fifths of its profits from Asia, aims to take advantage of AgBank’s extensive domestic network, in return providing its partner with access to its international footprint.
This could include access to capital markets, international trade corridors, financial markets and consumer finance sectors, and share information, research and staff training, Standard Chartered said.
AgBank is the last of China’s big four banks to list its shares and the first to do so without first bringing in a major foreign strategic investor. The commercial bank, started in 1951, has over 23,000 branches and about 2.6 million corporate customers and 320 million retail customers.
Standard Chartered said it will pay for the stake from its internal cash resources, which is likely to shave about 10 basis points off its Core Tier 1 capital ratio of 8.9 percent at the end of 2009, analysts estimated.