Read Closing Case: Industrial and Commercial Bank of China at the end of Chapter 11 in your text. Write a two- to three-page paper, excluding the title and reference pages, with a detailed analysis that addresses the following:
- Examine why ICBC felt the need to issue equity in markets outside of China. Describe the advantages and disadvantages of such a move.
- Determine the attraction of the ICBC in regards to providing exchange listings to foreign investors. Provide examples of why investors would be interested.
- Summarize the risks for a foreigner associated with investing in ICBC. Provide examples of possible risks.
In addition to the required text, provide at least one additional scholarly source to support your point. Your paper should be formatted in APA style as outlined in the Ashford Writing Center.
Book is Hill, W.L. (2011). International Business: Competing in the global marketplace (8th ed.). New York: McGraw-Hill Irwin.
Closing Case is Below:
Industrial and Commercial Bank of China
In October 2006, the Industrial and Commercial Bank of China, or ICBC, successfully completed the world’s largest ever initial public offering (IPO), raising some $21 billion. It beat Japan’s 1998 IPO of NTT DoCoMo by a wide margin to earn a place in the record books (NTT raised $18.4 billion in its IPO). The ICBC offering followed the IPOs of a number of other Chinese banks and corporations in recent years. Indeed, Chinese enterprises have been regularly tapping global capital markets for the last decade, as the Chinese have sought to fortify the balance sheets of the country’s largest companies, to improve corporate governance and transparency, and to give China’s industry leaders global recognition. Since 2000, Chinese companies have raised more than $100 billion from the equity markets. About half of that came in 2005 and 2006, largely from the country’s biggest banks. Shares sold by Chinese companies are also accounting for a greater share of global equity sales—around 10 percent in 2006 compared to 2.8 percent in 2001, surpassing the total amount raised by companies in the world’s second largest economy, Japan.
To raise this amount of capital, Chinese corporations have been aggressively courting international investors. In the case of ICBC, it simultaneously listed its IPO shares on the Shanghai stock exchange and the Hong Kong exchange. The rationale for the Hong Kong listing was that regulations in Hong Kong are in accordance with international standards, while those in Shanghai have some way to go. By listing in Hong Kong, ICBC signaled to potential investors that it would adhere to the strict reporting and governance standards expected of the top global companies.
The ICBC listing attracted considerable interest from foreign investors, who saw it as a way to invest in the Chinese economy. ICBC has a nationwide bank network of more than 18,000, the largest in the nation. It claims 2.5 million corporate customers and 150 million personal accounts. Some 1,000 institutions from across the globe reportedly bid for shares in the IPO. Total orders from these institutions were equivalent to 40 times the amount of stock offered for sale. In other words, the offering was massively oversubscribed. Indeed, the issue generated total demand of some $430 billion, almost twice the value of Citicorp, the world’s largest bank by market capitalization. The listing on Hong Kong attracted some $350 billion in orders from global investors, more than any other offering in Hong Kong’s history. The domestic portion of the stock sales, through the Shanghai exchange, attracted some $80 billion in orders. This massive oversubscription enabled ICBC to raise the issuing price for its shares and reap some $2 billion more than initially planned.