2010-07-05 14:05

Clashing with ABC

Bank of China's move caught many off guard in part because it comes just as Agricultural Bank of China, the nation's No 3 lender, is preparing to launch an IPO in Shanghai and Hong Kong, expected to raise $20 billion or more later this week. [Focus on ABC's IPO]

"Bank of China's fundraising plan caught me by surprise as they previously ruled out the possibility of additional sales of A-shares, and the market is apparently frightened," said Ye Yunyan, an analyst at Galaxy Securities.

Despite the close timing, analysts said the two fundraising plans were not likely to fall too close together, as Bank of China's plan still required shareholder approval and was likely to be at least a month before it could proceed.

The capital-raising rush also comes amid mounting talk that China could take steps to support its stock market, which is down 28 percent year to date, making it the world's second-worst performer after Greece.

One such step, which China has resorted to several times in the past, could be a freeze on new fundraising in Shanghai by locally listed companies.

The fundraising should also have less impact than its large numbers imply because many of the new shares would presumably be purchased by the bank's largest shareholder, Central Huijin Investment Co, a government entity that holds about 68 percent of the bank.

"If Huijin fully participates in the share placement, the amount that goes to the market will actually be much smaller than the targeted 60 billion yuan," said Victor Feng, an analyst at Everbright Securities.

"Nevertheless, in the immediate term, we think the fund-raising plan will have a negative impact on market sentiment and, hence, valuations of banking stocks."

Analysts predicted the placement was unlikely to come until September at the earliest, and could even take place in the fourth quarter.

In its Friday announcement, Bank of China did not specify prices for the rights offering. Analysts said that based on past experience with other Chinese banks, the rights should be priced at a discount of 30-40 percent to the bank's current share price.