BANK of China plans to raise $2.5 billion (£1.35 billion) on the Shanghai stock exchange by July 5 in China’s biggest domestic IPO.

According to its listing prospectus published yesterday, the bank, China’s top foreign exchange lender and second-largest lender overall, will sell up to 10 billion yuan-denominated shares, raising as much as 20 billion yuan (£1.35 billion) in the float.

This comes on top of the $11.2 billion the bank raised in Hong Kong on June 1 — the world’s fourth-largest IPO. The second capital raising will beat China’s previous record-holder for a domestic IPO, the $1.5 billion share sale in 2001 by Sinopec Corp.

Chinese investors are expected to be enthusiastic buyers of the shares, if recent demand for fresh stock is a measure. Earlier this month, in the country’s first domestic offering in a year, a 444 million yuan capital raising by CAMC Engineering drew offers worth 204 billion yuan from retail investors.

Bank of China said yesterday that it would sell 20 per cent of its share offering to 14 Chinese strategic investors, including Baosteel Group, the country’s top steelmaker, and China Life. The strategic investors will have to hold their shares for at least 18 months.

A further 32 per cent of the offering will go to institutional investors and the rest to retail buyers. Institutions will have a lock-up period of between three and six months.

Pricing details will be given on June 22, the bank said. Domestic A-shares are likely to be priced at a little more than 3 yuan each, according to a poll of analysts. At this price, the bank would have to issue about 6.7 billion shares to hit the $2.5 billion target.

Institutions will be able to subscribe for shares on June 19 and 20, before subscription is thrown open to retail investors on June 23.

Bank of China’s decision to list in Shanghai is seen as an important signal to the domestic market, which has been cheered by a recent recovery. Until 2006 most of China’s big companies sought Hong Kong or overseas listings because it was easier that way to get access to foreign capital.

But China’s securities authorities want local investors to be given an opportunity to buy more easily into the country’s best-performing companies.

The bank’s listing will also help the reform of China’s banking system in preparation for the opening of the market to global banks later this year under its World Trade Organisation commitments.

Industrial and Commercial Bank of China, the country’s biggest lender, is currently considering a $12 billion listing in Hong Kong by the end of the year.

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