Everbright Bank pushes plan to sell H shares

PUBLISHED : Tuesday, 22 February, 2011, 12:00am
UPDATED : Tuesday, 22 February, 2011, 12:00am

China Everbright Bank plans to list in Hong Kong, raising as much as HK$47 billion and setting the trend for many other smaller banks in need of capital.

Proceeds from the initial public offering will be used to supplement the bank's core capital, increase its capital adequacy ratio, improve profitability, guard against future risks and support rapid development in businesses, Everbright Bank said in an announcement.

The medium-sized mainland bank has long planned to sell shares in Hong Kong, but the move came sooner than most analysts had expected.

This was because the bank had just raised US$3.3 billion through an initial public offering of A shares in Shanghai last year.

'We originally expected Everbright Bank to raise funds again in 2012, but I think they carried out the plan earlier because of concerns about its capital adequacy ratio,' said Li Shanshan, an analyst at Bocom International.

Li also said that other lenders, such as China Merchants Bank, Shenzhen Development Bank and Industrial Bank might also raise more funds.

The average mainland bank capital adequacy ratio, which determines a bank's capacity to meet its liabilities and other risks, reached 11.1 per cent and core capital adequacy ratio rose to 9 per cent by the end of last year, according to the banking regulator.

Everbright's core capital adequacy ratio could rise to 12.3 per cent by the end of this year after the Hong Kong fund raising, compared with an expected 8.5 per cent for its past fiscal year, said Li Shuangwu, an analyst at Wanlian Securities.

The lender plans to sell up to 10.5 billion H shares with an over-allotment of up to 1.5 billion shares.

This would bring its total H-share issuance to as much as 12 billion shares.

Based on yesterday's close of 3.96 yuan (HK$4.69) for the A shares, the bank could raise the equivalent of 40 billion yuan in Hong Kong before the over-allotment.

Everbright Bank's shares fell for two days, dipping 0.25 per cent yesterday and underperforming a 1.12 per cent rise in the Shanghai Composite Index.

The price fluctuation of Everbright Bank's A shares was expected to be mild, as the stock was already trading at a relatively low price, Li said.

He said he did not expect prices to drop more than 10 per cent from December last year in the short term.

Everbright Bank will become the ninth mainland bank to list in Hong Kong, where the market has outperformed the A-share market since the start of last year.

Mainland banks face a tough year as Beijing has raised interest rates three times in the past four months, and has repeatedly required banks to set aside more cash, with the latest increase of 50 basis points in the reserve requirement ratio announced last Friday.

Stronger footing

Mainland banks need to raise funds to lift their capital adequacy ratio

The amount China Everbright Bank is expected to raise from its H-share offering in Hong Kong, in HK$: $47b

The total number of H shares the mainland bank is expected to sell, including the over-allotment: 12b