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Bank of Communications May Sell $7 Bln Shares, Bonds (Update4)
By Matthew R. Miller and Luo Jun
Nov. 17 (Bloomberg) -- Bank of Communications Ltd., China's fifth-largest, plans to raise as much as $7.4 billion by selling shares and bonds to domestic investors as it seeks funds to extend more loans and credit cards.
The Shanghai-based bank will seek approval to sell as many as 4.5 billion yuan-denominated shares and 25 billion yuan ($3.18 billion) of subordinated bonds, it said in a statement to the Hong Kong stock exchange today. Based on yesterday's closing price in Hong Kong, its stock offering could raise $4.2 billion.
Bank of Communications, 19.9 percent owned by HSBC Holdings Plc, follows bigger rivals Industrial & Commercial Bank of China and Bank of China Ltd. in tapping domestic investors after Shanghai's benchmark index surged 68 percent this year. The bank needs to replenish capital that's failed to keep pace with loan growth in the world's fastest-growing major economy.
``Chinese banking stocks are all the rage right now as investors bet on potential benefit from the robust economic growth,'' said Zhang Ling, who helps manage the equivalent of $2.4 billion at ICBC Credit Suisse Asset Management Co. in Beijing. ``Bank of Communications is expanding faster than the bigger rivals and therefore demand for capital is more urgent.''
Shares of Industrial & Commercial Bank of China Ltd., the nation's biggest, have gained 22 percent on the mainland since their Oct. 27 debut after an initial public offering. Bank of China, which also had an IPO this year, has risen 19 percent on the domestic market since July 5.
Chinese banking stocks dropped today. Shares of Bank of Communications fell 2.9 percent in Hong Kong to HK$7.13 at 11:56 a.m.
Capital Adequacy
Proceeds from the share and bond sales will be used to shore up Bank of Communications' capital. The lender's capital- adequacy ratio, an indicator of its financial health, fell to 11.09 percent as of Sept. 30 from 11.52 percent at the end of 2005.
Although above the minimum required, the ratio still lags behind those of Hong Kong banks, which are generally above 16 percent, said Victor Tsang, who helps oversee $50 million of assets at Quam Asset Management in Hong Kong.
Increasing lending reduces the proportion of capital to risk-weighted credit, forcing banks to raise more funds to sustain growth. Bank of Communications had 911.2 billion yuan of outstanding loans as of Sept. 30, an 18 percent increase from the end of 2005. China's banking regulator requires a minimum capital adequacy ratio of 8 percent to protect depositors and absorb losses in case of bankruptcy.
Growth Opportunities
``There's still ample opportunity for growth'' in China, Tsang said. Also bank stocks are currently trading at high valuations, he said, making this a good time to raise money through the markets.
Chinese companies have sold $14.7 billion of A shares since a sales ban was lifted in May, according to data compiled by Bloomberg. The one-year restriction had been imposed to allow time for the conversion of mostly state-held non-tradable stock to common equity.
Industrial & Commercial Bank of China last month raised $5.1 billion on the mainland as part of a $19.1 billion simultaneous offering that included a Hong Kong sale. Bank of China sold $2.5 billion of shares in China in June after an $11.2 billion Hong Kong IPO earlier in the same month.
Mutual Funds, Credit Cards
Bank of Communications' third-quarter profit rose 42 percent to 2.99 billion yuan as economic growth spurred demand for consumer loans and asset-management services. New yuan lending by China's banks rose 40 percent in the first nine months from a year earlier, even as the government tried to cool the fastest economic expansion in a decade.
Its profit growth may average 33 percent between 2005 and 2008 as loans increase by 19 percent annually, according to Goldman Sachs Group Inc. analyst Ning Ma. Bank of Communications focuses on offering loans, mutual funds and credit cards to the wealthiest Chinese, those with savings of more than $50,000.
The bank will hold a shareholders meeting on Jan. 9 to vote on the share offering, which is subject to approval by the China Securities Regulatory Commission, the China Banking Regulatory Commission and other relevant regulatory authorities, the announcement said.
Shares of Bank of Communications, which raised HK$16.84 billion ($2.17 billion) in a Hong Kong initial public offering last year, have doubled in price since the sale.