Agricultural Bank of China has reached an agreement with a group of seven investors ahead of its massive initial public offering, sources said on Friday, with two funds from the Middle East considering a stake that could exceed $2 billion.   

The agreements are a key step for the state-owned lender, as the more money it can collar before the Shanghai-Hong Kong listing, the easier it will be to raise its record-setting goal.

But there are plenty of headwinds facing the deal, another reminder appearing on Friday in a report that Industrial and Commercial Bank of China may delay its fundraising until 2011 on concerns about the large drop in the country's stock market since mid-April.

With AgBank hoping to raise more than $23 billion, China's third-largest bank has signed up a diverse cornerstone investor list for its Hong Kong offering. The companies will appear in the Hong Kong offering prospectus due next week for what could be the world's largest ever IPO, the sources say.

China Life, Hong Kong tycoon Li-ka Shing, Kuwait's sovereign wealth fund, Rabobank, Standard Chartered, Temasek Holdings and Qatar's sovereign wealth fund have all committed to invest, although the exact amount of each stake has yet to be determined.

Kuwait and Qatar were considering investments of $1 billion or more each, sources involved with the deal said, while other commitments ranged from $100 million to $500 million.  

Britain's StanChart is considering a stake of up to $500 million, while Netherlands-based Rabobank is seeking up to $200 million. The sources were not authorised to speak publicly about the IPO process. AgBank could not immediately be reached for comment.

Of the total amount AgBank hopes to raise, 53 percent will come from the Hong Kong listing, and the reminder from Shanghai.

The formal list of cornerstone investors for the Shanghai A-share offering is not yet clear, though several Beijing-backed companies are expected to participate.   

Like any deal, investors could agree to more, or less, or back-out altogether. AgBank's timing is not ideal, as China's market is down around 20 percent since mid-April when Beijing instituted measures to cool property prices and on the subsequent euro zone debt crisis.

AgBank planned to raise up to $30 billion, with an aggressive valuation target, but the market slide has scaled that back.   

The Beijing-based bank, founded in 1951 by Mao Zedong as the rural unit of the central bank, is still known for its customer base spread across far-flung parts of China, though it also has a major presence of most of the country's major cities.   

AgBank today boasts nearly 24,000 branches and employs more than 441,000 people, eclipsing ICBC and China Construction Bank, the world's two biggest banks by market value.

AgBank has $1.4 trillion in assets and 320 million customers, a base larger than the population of the United States. - Reuters