Agricultural Bank of China's <1288.HK> $19.3 billion IPO limped across the finish line on Friday after a three-month sprint, its modest Hong Kong debut reflecting concerns over valuations and investor cautiousness.

The near-record deal, kicked-off by surprise just ahead of a long Easter weekend, marks the final step in Beijing's effort to list its top four banks and removes a giant overhang for China's stock markets that are braced for more share sales.

AgBank's main rivals plan multi-billion-dollar offerings in the coming months to bolster their capital ratios after a lending binge last year, while sources say American International Group plans to spin-off its Asian unit in a Hong Kong IPO that could raise $15 billion.

Shares in AgBank hit a high of HK$3.31 versus an issue price of HK$3.20 and closed up 2 percent at HK$3.27 in trading volume one-sixth of the overall Hong Kong market on Friday.

Though the IPO lacked the pop of its rivals, it came to market at a difficult time, as it pushed through the deal while global jitters loomed.

You can't really compare it with the sterling performance of ICBC and other banks as those happened in a different market backdrop, said Alfred Chan, chief dealer at Cheer Pearl Investment. At HK$3.30, (AgBank) reflects full value so there is no rush among retail investors to jump in and buy.

Industrial & Commercial Bank of China <1398.HK> and Bank of China <3988.HK> both soared 15 percent on their Hong Kong openings after listing at the start of a bull market in 2006.

This year, Hong Kong's Hang Seng index <.HSI> is down about 8 percent, while the Shanghai Composite <.SSEC> has shed more than a quarter, battling Greece <.ATG> for the dubious honor of the world's worst performing market.

AgBank's Shanghai-listed shares <601288.SS> rose less than 1 percent on their first day's trade on Thursday.

HISTORY

Founded in 1951 by Mao Zedong as the rural unit of the central bank, AgBank is the last China's Big Four state-owned lenders to list its shares.

With almost 24,000 branches and some 441,000 employees, AgBank has almost double the staff and twice as many outlets as Bank of China, and a slightly smaller asset base. ICBC, the world's largest bank by market capitalization, has 16,000 branches and 386,000 employees.

The underwriters worked hard to beef up the deal size with early investors, while giving top treatment to mutual funds who agreed to early commitments on the order book.

But the IPO generated lackluster demand from Hong Kongers, with the retail portion of its deal only 5.9 times covered, making it the worst among the state banks' IPOs to appeal Hong Kong investors interests.

Certainly the performance of (AgBank) will impede demand for the likes of Bank of China or ICBC's funding, Ben Collett, Head of Equities at Louis Capital Markets, said in a Reuters Insider television interview, citing waning appetite for bank shares.

AgBank's IPO could still rise to a world record $22.1 billion if additional shares set aside in an over-allotment option are sold in the coming weeks. Its $128 billion market capitalization ranks it the sixth largest bank in the world, with its main China rivals occupying three of the five spots above it.

WHO'S WHO

Executives at the Beijing-based bank gave a crystal model of the company's headquarters to the Hong Kong Stock Exchange.

Hong Kong legislators including CEO Donald Tsang were on hand to watch, as were CICC banking head Levin Zhu and Deutsche Bank CEO Josef Ackermann.

Also present were the investment bankers tasked with selling the offering to mutual funds and arranging the cornerstone investors which accounted for $5.45 billion of the Hong Kong IPO.

The banks worked for months without knowing who would be the top coordinator, nor what fee they'd earn. In the end, the earned 1.4 percent for the Hong Kong portion, the lowest IPO fee among China's top four banks. For both Hong Kong and Shanghai, the total payout to investment bankers was around $250 million.

To be honest, we're all exhausted, said a banker involved in the deal but who did not want to be named. The three months involved meetings at all hours, morning attendance records and daily report cards, a process run by Pan Gongsheng.

Pan, AgBank's vice president, is the man credited with being the driving force behind the IPO process, having led ICBC in its record $21.9 billion float in 2006.

In an interview with Reuters on Friday, Pan said he was confident that 2010 net profit will exceed its previously announced target of $12.2 billion, citing net interest margins widenening, higher intermediate business income, and low credit costs.

The economic growth in China's rural areas is faster than that of cities, the 46-year-old executive said. With the development of China's rural economy, the key indications of our rural business will see a gradual increase among all.

VALUATION CONCERNS

AgBank's Chairman Xiang Junbo, a war hero and award winning script writer, was relaxed in the morning, eating breakfast alone at Hong Kong's Shangri-La hotel before the listing.

After this listing, the bank will enhance its competitiveness in the market and its risk management, he said at the ceremony, sporting a red tie.

One factor weighing on AgBank's IPO is the slight premium to Bank of China in terms of price to book value, leading some fund managers to view the stock expensive.

The bank was historically the weakest of China's top four lenders, though a capital injection and a hive-off of bad loans have brought the company back to health.

The offering price represents 1.65 times AgBank's forward book value, just above BoC, but below that of ICBC <601398.SS> and CCB <601939.SS>.

CICC, Goldman Sachs , and Morgan Stanley led the Hong Kong offering, with JPMorgan , Macquarie , Deutsche Bank and AgBank's own securities unit also involved. CICC, Citic Securities, Galaxy and Guotai Junan Securities handled the Shanghai portion.

($1=HK$7.75)

(Additional reporting by Denny Thomas, Donny Kwok and Kei Okamura; Writing by Michael Flaherty; Editing by Lincoln Feast)

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