ICBC targets 8b yuan from offering of asset-backed bonds

PUBLISHED : Saturday, 22 March, 2008, 12:00am
UPDATED : Saturday, 22 March, 2008, 12:00am

Industrial and Commercial Bank of China, the world's biggest lender by market value, plans to raise 8 billion yuan (HK$8.84 billion) by selling asset-backed bonds.

It will be the bank's second such deal as the mainland financial system faces tighter liquidity and Beijing encourages the development of a corporate bond market.

The bonds will be sold on the interbank market next Thursday and Friday in three tranches carrying different ratings, the lender said.

'Banks need to raise capital by selling securities as the central government is using monetary policies to tighten liquidity,' said Guo Tianyong, a professor at the Central University of Finance and Economics.

Earlier this week, the People's Bank of China raised the ratio of deposits lenders must hold in reserve by 50 basis points to a historic high of 15.5 per cent, the 15th increase since the middle of 2006, to soak up excess liquidity.

Beijing is eager to develop the nation's bond market to give companies more options in borrowing and help banks manage risk.

However, as selling asset-backed securities is at its infancy stage on the mainland, the government is choosing state-owned banks to do the initial trials. In 2005, China Construction Bank and China Development Bank were chosen by the government for a pilot programme to sell asset-backed bonds.

China Development Bank scrapped an 8.1 billion yuan sale of asset-backed bonds in June last year after failing to draw enough interest. At the time, returns were not expected to be attractive in the country's rising interest-rate environment.

'Small to medium-sized joint-stock banks are more willing to sell such bonds because compared with big banks, which have extensive outlets around the nation, they don't have the ability to absorb a lot of deposits,' Mr Guo said.

Securitisation can take loans off a bank's balance sheet and improve its asset-liability ratio. Mr Guo said banks faced the problem of offering long-term loans to clients but having to absorb short-term deposits.

In October last year, ICBC raised 4.02 billion yuan by selling its first asset-backed bond. Shanghai-listed China Minsheng Banking Corp said last year it planned to sell 1.8 billion yuan of asset-back securities, but it is still waiting for regulatory approval.

Ye Ying, a bonds analyst at Ping An Securities, says this is a good time to sell bonds as the lacklustre stock market had prompted more funds to flow into the debt market. 'In the past two months, bond prices have gone up although yields still can't catch up with inflation,' said Mr Ye.