AgBank’s Odd Cornerstone Investors

AgBank’s Odd Cornerstone Investors

If you thought the cornerstone investors for the Hong Kong leg of Agricultural Bank of China’s initial public offering were a motley crew, take a look at the cast for the Shanghai IPO (PDF, in Chinese).

Accounting for a whopping 40% of the mainland issue (assuming the greenshoe option is exercised), the 27 investors come from all corners of China’s economy and — with the exception of the occasional financial investor — it’s not immediately obvious why they might feel their business will be enhanced by taking a piece of AgBank.

Firms with some involvement in China’s agricultural sector, such as Cofco Ltd., China’s main grain producer, and China Tobacco Corp., may have a strategic reason for investing. Similarly, if AgBank is poised to taking a leading role in the urbanization of China’s hinterland, as it has been telling investors, then there may be some synergy for State Grid Corp. of China, the monopoly power distributor in all but five southern provinces, and China State Construction Engineering Corp.

But it’s more difficult to divine the strategic thinking that went into, say, Aviation Industry Corp. of China or China State Shipbuilding Corp. stumping up cash for a piece of AgBank. Ditto for China Aerospace Science & Industry Corp., China National Nuclear Corp. and Dongfeng Motor Corp.


Cornerstone investors became popular a few years back when Chinese companies started listing on the Hong Kong stock exchange. Little was known about many of the Chinese firms choosing Hong Kong for their IPO and foreign investors were wary of stumping up cash. One way to calm jitters was by taking on cornerstone investors, well-respected entities that would agree to take a percentage of the offer prior to the price being set, and to hold onto that stake for a pre-arranged period of time. That vote of confidence in the stock would then hopefully encourage other investors to buy in.

But in some cases, rather than stimulating interest, the involvement of cornerstone investors seems more an exercise in shoring up enough funds in advance so the issuer doesn’t have to rely on the market.

That seems to be the case with AgBank, which choose to push ahead with its IPO despite markets globally having been in the doldrums. Rather than savvy investors like sovereign wealth funds or well respected entrepreneurs — which make an appearance on the Hong Kong roster of AgBank’s cornerstone investors — the mainland leg is dominated by companies that, like AgBank, are owned by the Chinese government.

In an amazing mobilization of state resources, those investors were willing to pay a combined $4.8 billion for a piece of AgBank. They ended up paying around $4.1 billion after the price came in below the upper limit of the indicative price range.


So far AgBank has raised $19.23 billion in a dual listing in Hong Kong and Shanghai, still a way behind Industrial & Commercial Bank of China Ltd’s IPO in 2006 which raised $21.9 billion making it the biggest ever.


ICBC also made heavy use of cornerstone investors, signing up 23 firms for its A-share listing, many of which such as Cofco, the investment arm of mining group China Minmetals Corp, and China Life Insurance Co. have also turned out for AgBank. Similarly, the funds raised from them also accounted for about 40% of the Shanghai leg of ICBC’s IPO.

– Dinny McMahon, with contributions from Rose Yu

AgBank’s Odd Cornerstone Investors - China Real Time Report - WSJ

-- The MasterFeeds