CCB lowers rights issue capital target to 61.6b yuan

PUBLISHED : Wednesday, 03 November, 2010, 12:00am
UPDATED : Wednesday, 03 November, 2010, 12:00am

China Construction Bank Corp plans to raise 61.6 billion yuan (HK$71.26 billion) in Asia's biggest rights offering, 18 per cent lower than the maximum it initially sought, on bumper quarterly profits and improved stock performance.

The world's second-largest lender by market value will sell 630 million A shares at 3.77 yuan each and 15.73 billion H shares at HK$4.38 each starting this week. Investors will be entitled to 0.7 share for each 10 shares held.

The bank is among mainland peers to replenish capital after a lending binge weakened their balance sheets and prompted regulators to raise capital adequacy ratio requirements to better cushion default risk. 'It is normal for the bank to adjust the fund-raising scale according to its capital demand and market performance,' Wu Yonggang, an analyst with Guotai Junan Securities, said. The bank had said in April it would raise up to 75 billion yuan to consolidate its capital base after it extended the most new loans among major lenders last year and amid concerns that some loans, especially those going to the property sector and local government financial vehicles, may turn sour in about three years.

As retained earnings grew faster than risky assets in the first nine months, the lender's core capital ratio rose 0.02 percentage point to 9.33 per cent at the end of September. The ratio stood at 11.64 per cent, compared with the 11.5 per cent required by regulators.

Retained earnings is the percentage of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

Construction Bank boosted net income by 31 per cent last quarter to 39.8 billion yuan on expanded net interest margin, beating expectations of many analysts. The non-performing loan ratio was 1.14 per cent, 0.36 percentage point lower than at the end of last year.

Lenders' bad-loan ratio is expected to rise from the current lowest level in the next few years. About 71 per cent of more than 700 bankers polled in a semi-official survey believe a looming bad-loan problem is likely to explode as early as in three years, according to a report released last month by the China Banking Association and PricewaterhouseCoopers.

Construction Bank's H shares rose 2.23 per cent to HK$7.81 yesterday, an almost three-year high after Morgan Stanley and Goldman Sachs issued positive reports on its margin prospects.

The rights issue price is at a 43 per cent discount to the bank's closing price of HK$7.64 on Monday and is 27 per cent lower than its A-share closing price of 5.16 yuan.

Bank of China, which is seeking 60 billion yuan in a rights issue around the same time, granted investors a discount of 35 per cent in Shanghai. It plans to sell 7.6 billion H shares at HK$2.74 a share and up to 17.8 billion A shares at 2.36 yuan each, on a basis of one rights share for every 10 shares held.

Li Lihui, president of BOC, said a capital adequacy ratio of 10 to 12 per cent would be suitable for mainland banks, as a higher ratio could reduce shareholder returns and a lower level would be insufficient to withstand risks, according to the latest issue of Beijing-based Talents magazine. BOC's capital ratio stood at 11.73 per cent at the end of September.

Industrial and Commercial Bank of China said in July it aimed to raise up to 45 billion yuan by selling as many as 0.6 share for every 10 held by shareholders. The plan would give A-share investors a discount of almost 49 per cent if priced at the lowest end.

Less needed now

Construction Bank said in April that it would raise this much, in yuan, in a rights offering: 75b yuan