Merchants Bank plans US$2b offering

Listing would make Shenzhen lender first to trade in both mainland and HK

China Merchants Bank (CMB) aims to launch a US$2 billion H-share offering this year, becoming the first mainland lender to trade on both the domestic and Hong Kong stock exchanges, sources said.

The Shenzhen-based bank last week 'verbally' mandated Merrill Lynch, UBS and China International Capital Corp (CICC) to arrange the sale of about 15 per cent of its enlarged share capital.

'Unlike Bank of Communications (Bocom) and China Construction Bank (CCB), which received government capital injections before listing, CMB has maintained good asset quality itself,' a source close to the bank said, comparing CMB to the only two mainland lenders traded on the Hong Kong stock exchange so far.

CMB's Hong Kong listing could also mark only the second time an A share-listed company has overcome the higher mainland stock valuations to launch a subsequent H-share initial public offering, after telecoms equipment maker ZTE.

Already quoted in Shanghai, CMB could launch its Hong Kong offering in September at the earliest after fund managers return from their summer recess and likely between the mega offerings of larger domestic rivals Bank of China and Industrial & Commercial Bank of China, the source said.

Previous reports had put the estimated size of CMB's H-share sale at $10 billion.

'Having built a decent business, CMB is seeking an alternative source of funding,' the source said, adding that the listing proceeds would be used to boost the bank's capital adequacy ratio stretched by rapid asset expansion.

CMB last reported capital adequacy at 9.27 per cent at the end of June with core ratio of 5.39 per cent, compared with regulatory minimums of 8 per cent and 4 per cent, respectively.

Total assets grew 19.9 per cent year on year to 703.4 billion yuan at the end of September, outstripping the 12.8 per cent growth in net asset value to 23.5 billion yuan.

Goldman Sachs and Deutsche Bank were among other investment banks which had contested for a mandate to list the largest of five mainland-quoted banks in Hong Kong.

Among the winners of the mandate, CICC has fostered a long-standing relationship with CMB, having sponsored the bank's 10.9 billion yuan A-share initial public offering in 2002.

UBS last year hired Li Yi, a former managing director of CMB's ultimate biggest shareholder, China Merchants Holdings, as chairman of its China business. Merrill Lynch benefited from strong political ties.

In a November report, Goldman praised CMB on its 'resilient asset quality, strong consumer banking franchise, the leading position in China's growing credit card market and professional management team.'

At the end of September, 2.6 per cent of its 454.3 billion yuan loan portfolio was non-performing.

At a time when Chinese lenders are shifting focus from corporate to retail banking, CMB sourced 37 per cent of its total deposits from retail depositors and targets a middle to high-end retail customer base.

Despite its much smaller asset size and distribution network than the Big Four state banks, CMB had about three million credit cards in issue, ranking it among the top three credit card issuers in China.

Unaudited net profit rose 27 per cent year on year to 3.2 billion yuan in the first nine months last year, the latest period for which financial figures are available.

Double play

About 15pc of enlarged share capital to be offered for sale

Funds raised would be used to boost capital adequacy ratio

September earliest date IPO could be launched