Six weeks after suffering a huge disappointment with the loss of AIA's massive IPO, equity capital markets bankers in this region received an unexpected present in their inboxes from one of China's largest banks.

The surprise request last week by Agricultural Bank of China to seek out banks for its more than $20 billion IPO has set off a frenzy amongst ECM covering Greater China.

If successful, the deal could be the world's largest IPO ever.

Western and Chinese investment banks are competing to play a role in a deal that could produce at least $500 million in fees. While AgBank's mega-IPO has been anticipated for years, few bankers who cover the space expected the offer to come so soon.

They seem to have accelerated the process, said one equity capital markets banker who did not want to be identified.

AgBank is now joining a fund-raising bonanza by China's top banks, several of which have announced plans to raise tens of billions of dollars to boost capital ratios.

Bankers and media reports anticipate an AgBank offering that is equal to or above the roughly $20 billion that the Industrial and Commercial Bank of China <1398.HK> <601398.SS> raised in 2006 through a Hong Kong and Shanghai dual listing.

AgBank was not available for comment.

According to an article this week in FinanceAsia, the fee charged on that deal was 2.5 percent (Hong Kong's standard IPO fee for banks is 3.5 percent).

While the fee structuring on the AgBank deal has yet to be determined, applying that equation would net $500 million in fees to be split among the banks involved.

Everyone is focused on the FIG space in China right now, said the ECM banker, referring to China's financial sector, and the huge amount of fees it's producing.

The $20 billion plus deal from AgBank will serve as a powerful thrust to Asia's hot IPO market, a bull run that began last summer but petered out a bit in the first quarter.

The deal will also console equity capital markets bankers in this city who saw the more than $10 billion AIA initial public offering slip through their fingers late in February when UK insurer Prudential Plc offered to buy the AIG subsidiary instead.

For the Shanghai A-share offering, the Western banks with licenses that make them eligible to take part in the deal are Credit Suisse Deutsche Bank , Goldman Sachs and UBS . They will compete against Chinese banks angling for the IPO -- a likely front-runner being CICC, given its dominance in the country's investment banking industry.

The competition for the Hong Kong H-share listing will be intense as well. Details of the deal are still vague and the timing unclear, but with a request for proposal going out last week, some expect the IPO to be launched in a few months.

The banks are being interviewed this week.

AgBank's IPO process started some five years ago and it has steadily cleaning up its balance sheet ahead of the listing. The Beijing-based bank hived off $111 billion of bad loans in November 2008 before completing its conversion into a joint stock company early last year.

Central Huijin Investment Ltd, the domestic investment arm of China's sovereign wealth fund, owns half of AgBank following a $19 billion capital injection in 2008. The Finance Ministry owns the other half.

AgBank's restructuring is being widely watched as it would largely complete a decade-long overhaul of China's banking system that has seen the government spend tens of billions of dollars to clean up balance sheets once saddled with bad debt linked to government-directed lending.

(Additional reporting by Michael Wei; Editing by Muralikumar Anantharaman)

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