CCB lowers rights issue capital target to 61.6b yuan

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.