Merchants Bank given approval to raise 22b yuan in rights issue
China Merchants Bank has received approval to raise about 22 billion yuan in a rights issue of A and H shares to replenish its capital as mainland lenders begin a wave of refinancing.
The nation's sixth-largest bank said in a filing to the Shanghai Stock Exchange that it would issue 1.3 shares for every 10 held at 8.85 yuan per share and raise about 18 billion yuan in the A-share market and an amount equivalent to 3.98 billion yuan (HK$4.52 billion) in Hong Kong.
The A-share rights issue is from March 5 to March 11. The subscription for the Hong Kong rights offer will be open from March 15 to March 29, the lender said.
The share issue will be closely watched by mainland peers, which are awaiting regulatory approval for the huge financing schemes after lending an unprecedented 9.6 trillion yuan last year to help stimulate the economy.
Mainland banks will raise between 230 billion yuan and 280 billion yuan to meet the increased capital adequacy ratio requirement this year, investment bank China International Capital Corp has estimated.
'An important lesson learned from the financial crisis is that banks can only withstand serious impact by having adequate capital and sound asset quality,' said Liu Mingkang, head of China Banking Regulatory Commission, in an article in Qiu Shi, a Communist Party magazine.
'We have explicitly required capital adequacy ratio to be at least 11 per cent for big banks and at least 10 per cent for medium-sized and small banks this year,' Liu said.
Merchants Bank's capital adequacy is expected to rise to 12.6 per cent after the rights issue, chairman Qin Xiao said. The ratio was 10.5 per cent at the end of September.
Bank president Ma Weihua said last month that after the fund-raising exercise, the lender would have sufficient capital for three years' business development.
'The national policy and banks' impulse to maximise profit led to the aggressive expansion of bank assets last year,' said She Minhua, an analyst with Haitong Securities.
'This year, banks will definitely shift focus to asset quality and seek a sustainable development mode from pursuing loan growth,' She said.
Merchants Bank A shares rose 1per cent to 16.46 yuan yesterday, while its H shares rose 2.5 per cent to HK$20.30.
'The market reaction to the refinancing will be moderate as the prices have reflected the information since they announced the plan months ago,' She said.