Shares of Agricultural Bank of China (ABC) managed to close above the offering price after its modest debut in Shanghai and Hong Kong but the weaker-than-expected performance reflected investors' wariness about the rural lender's asset quality and its growth prospects, analysts said.

"The market is still full of uncertainties over whether the shares will fall below their IPO (initial public offering) price in the coming days although the bank managed to keep its price higher than the issue price," said Huang Xuejun, an analyst at Guosen Securities.

Shares of the lender slipped 0.4 percent in Shanghai last Friday to close at 2.69 yuan, just above their issue price of 2.68 yuan, after the 0.8 percent gain on Thursday's debut, which is the smallest first-day gain among the nine lenders that have floated shares in the market over the past four years.

Analysts said that the weak sentiment reflected investors' caution about the bank's long-term profitability and the health of its rural operation.

But if the bank manages to exercise the greenshoe or the overallotment option to issue an additional 15 percent shares, its initial public offering could still top that of the Industrial and Commercial Bank of China by raising US$22.1 billion as the world's biggest IPO ever.

The debut of ABC, the last of China's big four State banks to float shares, came at a tough time for the Chinese equities market which has declined nearly 25 percent this year with shares of a slew of companies dropping below their IPO prices on the first day of trading.

"The stock did not have a volatile performance on its trading debut, which indicates that investors might be betting on the long-term return rather than the short-term speculative gains," said Li Daxiao, head of the research institute with Shenzhen-based Yingda Securities

"Investors should not be too pessimistic as the negative impact of capital drain will gradually retreat from the market," he added.

Credit rating agency Moody's Investors Service upgraded its evaluation of the lender's capital position and ability to handle bad debt last Friday and said that the bank was positioned to benefit from both China's urbanization process and the government's push to increase incomes for the rural population because of its vast branch network in the country's rural areas.

But the agency warned of the risk in some of the lender's assets, particularly its loans to local government financing vehicles and borrowers in rural areas.

Market watchers said the ABC's listing was unlikely to cause sharp volatility in the market in the days ahead and the Shanghai index would likely consolidate between 2400 to 2500 points due to a lack of positive catalysts to boost the momentum in the short term.

(China Daily July 19, 2010)