Bank of China shares dip 0.88pc on rights issue
Jane Cai in Beijing
Bank of China shares fell in Hong Kong and Shanghai yesterday after the lender said it would raise up to 60 billion yuan (HK$68.96 billion) in a rights issue.
On the Hong Kong market its H shares outpaced the broader market decline to drop 1.26 per cent, while in Shanghai its A shares ended down 0.88 per cent.
On Friday, the bank announced it would sell 1.1 shares for every 10 held, or as many as 19.56 billion shares in Shanghai and 8.36 billion in Hong Kong to replenish capital. The plan is pending approval from regulators.
Of the total raising, 18 billion yuan is expected to come from H shareholders, 40.5 billion yuan from key shareholder Central Huijin Investment, and 1.5 billion yuan from other A-share investors based on the implied rights issue price of 2.15 yuan per share, analysts with China International Capital Corp said.
The rights issue takes the fund-raising announced by the mainland's five biggest listed banks to as much as US$45.6 billion after they extended record loans last year to support a government-led stimulus plan.
As the nation's largest foreign exchange lender BOC was hit hardest by the global financial crisis last year, and responded by focusing more on the domestic market.
'The announcement was not expected by the market,' said Robert Hu, an analyst with Shenyin and Wanguo Securities, after attending an analyst teleconference with the lender yesterday.
Although BOC said in March that it would make an issue of up to 20 per cent of existing H shares, many investors thought it would wait until after the offering by Agricultural Bank of China which is attempting to raise as much as US$20.1 billion. That view was reinforced by the fact that last month it completed the sale of 40 billion yuan of six-year bonds that can be converted into shares.
'A large proportion of the rights issue will go to the major shareholder Central Huijin, so the market impact should be relatively small,' Hu said. 'The market is highly concerned whether Huijin will fully subscribe to the shares. The management seems confident Huijin will do so.'
Central Huijin, a subsidiary of the country's sovereign fund, China Investment Corp, holds a 67.5 per cent stake in Bank of China. It said earlier this year that it would take part in the fund-raising of the leading lenders - BOC, China Construction Bank and Industrial and Commercial Bank of China.
ICBC, 35.4 per cent owned by Huijin, said in May it would sell up to 25 billion yuan in convertible bonds. It will also seek additional capital through its Hong Kong-listed shares.
Construction Bank, 57 per cent owned by Huijin, won shareholder approval in June to raise up to 75 billion yuan in a rights offer.
Huijin would issue bonds on the interbank market to raise the funds, Beijing-based Century Weekly reported yesterday citing unnamed sources.
Goldman Sachs analysts retained a neutral rating on BOC shares, saying the implied issue price of 2.15 yuan was 37 per cent lower than the current A-share price and 38 per cent lower than the H-share price.
They expect earnings per share to be diluted by 13.1 per cent this year, but said the capital adequacy ratio would be raised from 10.3 per cent to 12 per cent. China requires the big banks to have a minimum ratio of 11.5 per cent.
BOC management said it expected to complete the rights issue by the end of the year and would not need to raise additional funds for a further three years.
Lender is hardest-hit in global financial crisis focusing on mainland
Bank of China's Hong Kong-listed shares outpaced the Hang Seng Index's decline to fall by: 1.26%