Banking

BOC, ICBC may make A, H share rights issue

By ZHOU YAN and MAO LIJUN (China Daily)
Updated: 2010-05-08 09:42

Banks still in talks with Central Huijin on details of fund-raising plans

BEIJING - Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC), the country's first- and third-largest lenders by market value, may be considering tweaking their fund-raising plans by offering A- and H-share rights issues instead of convertible bonds in Shanghai, according to sources familiar with the matter on Friday.

Previously, there were rumors in the Chinese-language press about the would-be change, but these revealed few details.

The two banks are understood to still be in talks with China Central Huijin Investment Ltd on the details of their capital-raising plans, and are yet to win approval at their shareholders' meetings.

But the sources indicated that the planned capital amount will remain the same as their previous fund-raising proposals.

The purpose of the change is to better protect the interests of Central Huijin, while allowing small shareholders some new investment choices amid falling stock prices.

Central Huijin, the domestic arm of China's sovereign wealth fund, is the largest single shareholder in China's three biggest banks.

The two State-run banks' latest move follows the statement in April by their rival China Construction Bank (CCB), China's second-biggest lender, that said in April it's planning to raise up to 75 billion yuan ($10.99 billion) through a rights issue in Shanghai and Hong Kong.

ICBC and BOC originally planned to raise as much as 25 billion yuan and 40 billion yuan respectively through issuing convertible bonds in Shanghai to replenish their balance sheets following their lending sprees in 2009. The two were also said to be seeking additional capital via issuing up to 20 percent of their existing H shares in Hong Kong.

"The adjusted fund-raising plan in Shanghai alone will raise ICBC and BOC's core capital-adequacy ratio (CAR) by 0.4 and 0.77 percentage points respectively," said Jin Lin, an analyst at Orient Securities in Shanghai.

As of the end of March, the core CAR for ICBC and BOC was down 0.32 percent and 0.04 percent from 2009 to 9.58 percent and 9.11 percent respectively, if compared with the China Banking Regulatory Commission's minimum requirement of 7 percent.

ICBC said on Tuesday that it plans to reach 10.2 percent in core CAR this year and 10.1 percent in 2011 and 2012.

The ailing domestic equities market that weighs on share prices of the lenders will encourage their stakeholders to participate, sources said.

The country's big three lenders have dropped over 10 percent in a month in Shanghai on concerns that lenders will face dim earnings prospects arising from souring loans and the massive fund-raising plans.

"The latest adjustment is in line with Central Huijin's aim not to dilute its major stakes in the two companies, but will drag down the banks' share prices on concerns of falling 2010 earnings per share," said Lin Feng, an analyst at Sinolink Securities.

Central Huijin, which holds a 35.4 percent stake in ICBC and 67.5 percent in BOC, said in April that it would participate in the big three banks' fund-raising plans to boost the largest domestic commercial banks' capital strength.