CCB may tap bond market for 40b yuan to strengthen capital
China Construction Bank, the mainland's third-largest lender, plans to sell up to 40 billion yuan subordinated debt, probably including the first-time sale of five billion yuan in Hong Kong, to strengthen its capital base.
CCB would probably be one of five mainland lenders to sell yuan-denominated bonds in Hong Kong for the first time, a move aimed at opening a new channel for other Chinese corporates to raise funds, market sources said.
The other lenders planning sales were China Development Bank, Bank of China, China Export-Import Bank and Chinese Mercantile Bank, a unit of Industrial and Commercial Bank of China, one source said.
The government was hoping to use financial institutions as pioneers because they were considered as having higher credit quality and transparency by investors, he said.
'China Development Bank would be the first as it was widely speculated that it would tap the market as soon as late June or early July subject to the announcement of the formal guideline issued by the central bank,' said the source.
The State Council announced early this year that mainland financial institutions would be allowed to issue yuan bonds in Hong Kong, but details such as issuer qualifications, quotas and remittance of funds to the mainland have yet to be determined.
'The first yuan-denominated bond could be launched once the guideline was announced,' a banker said.
Market watchers, however, are mixed about the demand for yuan-denominated notes from overseas investors.
'There is a truckload of technical issues to fix before the formal launch for a yuan-dominated bond sale in Hong Kong, including the lack of a well-established secondary trading platform and hedging tools against interest swap risk,' said a bond fund manager.
Another issue is whether such bonds would need to seek credit ratings from international credit agencies as the lenders are already rated by domestic houses.
CCB said it would seek shareholders' approval for the 40 billion yuan bonds sale that carried maturities of at least 10 years.
It said the proceeds would be used to replenish capital. The bank's capital adequacy ratio stood at 12.11 per cent at the end of last year.
'CCB's capital adequacy ratio is quite tight when its business grows at a fast pace, so it's better for them to raise some cheap funding in advance,' said an analyst with a US bank. 'They may even consider an A-share sale to raise more capital.'
