Pudong Bank dives 10pc on share placement news

PUBLISHED : Thursday, 21 February, 2008, 12:00am
UPDATED : Thursday, 21 February, 2008, 12:00am

Shanghai Pudong Development Bank shares had their biggest slide in six years yesterday as a mooted mega share placement by the lender spooked investors.

The stock slumped the 10 per cent daily limit to close at 45.98 yuan after sources said the board was likely to endorse a one billion share offering next week.

The lender is reportedly seeking to raise 40 billion yuan to boost capital and fund acquisitions. The bank told the Shanghai Stock Exchange after the market closed that it did have a plan to sell additional shares, but did not provide details.

Analysts said Pudong Bank was hungry for fresh funds because it needed to boost its capital adequacy ratio. The ratio was only 8.24 per cent as of September 30 last year, close to the 8 per cent minimum required by the banking authority.

The bank may use part of the proceeds to expand nationwide. The Shanghai Composite Index fell 2.09 per cent yesterday, partly on concerns about the share placement. A flood of new equity could reduce the value of existing stocks.

'The market is now vulnerable to news about additional share sales,' said Zhang Pan, an analyst at TX Investment Consulting. 'It is a sort of a syndrome.'

Last month, Ping An Insurance (Group) announced plans to raise 160 billion yuan by issuing new shares, a move which attracted the ire of the official People's Daily, which criticised the refinancing deal.

The newspaper called on the financial regulator to carefully review Ping An's proposal before giving it the green light because the deal would hurt the interests of small investors.

'The share sale by Pudong Bank is of benefit to the company,' said Changjiang Securities analyst He Sheng. 'But investors have reason to worry because several other banks may follow suit due to capital inadequacy.'

Concerns that Beijing's tightening monetary policies will hurt bank earnings have sparked a sell-off in their stocks.

Lenders including Industrial and Commercial Bank of China and Bank of China have led declines on the stock market, where the key Shanghai index has slumped 13.2 per cent so far this year.

Pudong Bank, 3.8 per cent owned by Citigroup, earned 3.92 billion yuan in the first three quarters of last year, up 59.8 per cent from a year earlier.

Solid earner

Pudong Bank earned 3.92 billion yuan in the first three quarters of 2007, a rise of: 59.8%