Agricultural Bank of China's (AgBank) <1288.HK><601288.SS> initial public offering hit a record $22.1 billion on Friday, after it exercised an over-allotment option in full, two banking sources said.

In a widely expected move, AgBank -- China's No. 3 lender by assets -- sold extra shares in the Shanghai portion of the offer, the sources with direct knowledge of the fundraising told Reuters.

AgBank's IPO thereby toppled fellow Chinese lender Industrial and Commercial Bank of China's (ICBC) <1398.HK><601398.SS> $21.9 billion offering in 2006 to become the world's biggest.

Analysts said there were signs of heavy buying by institutions during the first month after its listing to keep AgBank's Shanghai share price above the IPO price, which was necessary to enable it to exercise the over-allotment in full.

AgBank's Shanghai-listed A-shares closed at 2.69 yuan on Friday, just above the IPO price of 2.68 yuan.

It has been a tough job for AgBank to have its shares kept above its IPO price, said Jin Lin, analyst at Orient Securities in Shanghai. Now that the greenshoe option has been exercised, I expect AgBank shares to fall, as there would be less support.

AgBank had already exercised a similar option for its Hong Kong portion last month. After its lackluster debut in mid-July, AgBank's Hong Kong-traded shares have risen about 6 percent.

The exercise of the over-allotment, also known as greenshoe, brings the number of shares sold in AgBank's Hong Kong and Shanghai offerings to 54.79 billion, increasing its original $19.3 billion raised by 15 percent.

AgBank, perceived as the weakest of the Big Four state-owned lenders, also set a record by completing the IPO in under three months by offering the smallest underwriting fees to investment banks for any large China bank IPOs yet.

These milestones underscore the changing landscape of Chinese capital markets, which have become the engine of growth for global IPOs.

AgBank and rivals including ICBC and Bank of China <3988.HK><601988.SS> are rushing to raise money to replenish capital depleted by last year's lending spree, as investors increasingly worry about Chinese banks' growth prospects and asset quality.

Mid-sized lender Everbright Bank is also conducting an IPO worth up to $3.2 billion in Shanghai, set to be China's second-biggest this year. Its shares debut on August 18.

Over-allotments are released when demand for the shares in the after-market is heavy. Underwriters release the shares, set aside at the original IPO price, to the allocated holders who then become public stockholders.

That extra chunk of stock sold is added to the total proceeds of the IPO. Underwriters typically have 30 days to release or dissolve the greenshoe, depending on demand.

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.

AgBank sold about 40 percent of the Shanghai offering to 27 strategic investors including China Life Insurance <2628.HK> <601628.SS> and China State Construction <601668.SS>. They are subject to lock-up periods of 12-18 months.

Eleven cornerstone investors were selected for its Hong Kong share offering, including Qatar Investment Authority and Kuwait Investment Authority, taking a combined $5.45 billion worth of shares.

($1=6.77 Yuan)

(Editing by Jacqueline Wong and Simon Jessop)

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