The IPO of Agricultural Bank of China (ABC) (A) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Problem Diagnosis

The Chairman of the Agricultural Bank of China had made a decision in the early of June 2010, to take the bank public. The IPO offering would raise financing equal to the 15% of the total capital of the bank which would be one of the biggest IPO in the history of the China banking industry. The Senior Vice president of the Bank and the Executive Director, Pan Gongsheng was in the charge of the IPO.

There were a number of issues heading in the way of this IPO, which needed to be addressed by the management of the Agricultural Bank of China in order to make this IPO successful and achieve its desired price to book ratio. First of all the volatility of the market had increased significantly over the last few weeks and the main reason for this was that the US economy was recovering from its recession. Secondly, the bank had to restore the investor confidence in the future performance of the company mainly through maintaining the ratio of the non-performing loans.

Finally, the third and the most significant threat to the success of the Agricultural Bank of China’s IPO was the report that had been issued by Bank of America-Merril Lynch. The analysts considered the rural banking sector as the main concerns associated with the bank. The analysts on the other hand also questioned the rural banking policy risks and asked the question to the management of Agricultural Bank of China that whether they could operate as a commercial bank. Other concerns related to the restructuring program of the bank, lack of credit culture and centralization of the credit approval decision. Therefore, all of these concerns need to be analyzed and addressed so that the IPO of Agricultural Bank of China turns out to be successful in 2010.

Analysis

The analysis has been performed for this IPO by analyzing the risks and rewards associated with this IPO which is about to take place in 2010. The management of Agricultural Bank of China had been planning for an IPO since a long time and this would be considered as one of the biggest IPO of all the big four banks in China. Furthermore, the team of this IPO was assigned to organize the simultaneous listing of the shares of the bank on the Hong Kong and the Shanghai stock exchange. The Agricultural Bank of China was majorly owned by the government of China and some other major stakeholders such as Central Safe Investments Limited, Ministry of Finance of Peoples Republic of China and National Council for Social Security Fund of the Peoples Republic of China. Out of this 100% stake, 15% of the stake would be offered to the general public in this IPO.

Reasons for Going Public

The main goal of Agricultural Bank of China to go for an IPO was that the management of the bank is to fuel the growth of the company and become the world class bank of China in the face of the economic crisis. There seem to be many important reasons due to which undertaking an IPO at this time might seem important for Agricultural Bank of China. Some of the most important of these reasons are highlighted below.

Fortifying the Position of the Bank in County and Urban areas: Funds were required by the management of Agricultural Bank of China to strengthen the position and the leadership of the bank in the county and urban areas so that the management of the bank could promote its value added and highly innovative products and focus on the key customers of the bank in the selected regions of the bank where the potential for growth was high. The company also had the opportunity to capture wide areas of the market in industrialization and urbanization with its wide range of the services and the financial products.

Expanding the Service & Product Portfolio: As the company had recently made a restructuring plan, therefore, now the management would seek to expand its operations and expand its service and product offerings such as commission based business and the fee business, credit card and the debit card business. The bank might also focus on leasing insurance, investment banking, rural insurance and asset management.The IPO of Agricultural Bank of China (ABC) (A) Case Solution

Distribution Channels Up-gradation: The management of Agricultural Bank of China could also used the raised funds to allocate separate space and area for the range of the bank’s functions, upgrade the bank’s outlets and improve the marketing position and the operational efficiency of the bank....................

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