Huaxia Bank seeks backing for 17b yuan bond sale

PUBLISHED : Wednesday, 12 July, 2006, 12:00am
UPDATED : Wednesday, 12 July, 2006, 12:00am


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Shanghai-listed Huaxia Bank plans to sell 17 billion yuan worth of bonds to fund expansion and improve its capital adequacy ratio.

Huaxia's board had approved a plan to sell up to two billion yuan in 10-year subordinated bonds at a fixed yield and issue up to 15 billion yuan in 'financial bonds' with a maturity of no more than five years, according to the bank's filing to the Shanghai Stock Exchange.

The plan must be approved by shareholders at a meeting on August 2 and by regulators, who may be reluctant to do so given their efforts to reduce liquidity in the banking system. Financial bonds are issued to provide banks with funds for expansion and daily operations, including lending.

'This definitely gives the bank more funding and liquidity to do more business, which the government wants to discourage,' according to Moody's Investors Service's banking analyst May Yan.

Banks are restricted in the amount of subordinated debt they can sell and proceeds from the sale of such bonds go towards improving their capital level.

Subordinated bonds have been sold for about two years and banks are generally only allowed to sell them once they have restructured and the central bank is satisfied with their balance sheets.

All of the big Chinese banks have sold vast quantities of subordinated debt but Huaxia has been relatively late to the game.

'Banks issue subordinated debt which is bought by other banks, which is a way for them to build up their capital adequacy, but at the same time, you spread risks around the system rather than take them out of the system,' according to Standard Chartered economist Stephen Green.

Before the lifting of a one-year ban on new share sales in China, the five mainland-listed banks were forced to sell bonds and solicit funds from strategic investors in order to finance expansion.