Minsheng to shore up funds
China Minsheng Banking Corp, which has won regulatory approval to issue new shares and bonds in order to raise its capital levels, is just the latest mainland bank to move to shore up its balance sheets.
The China Banking Regulatory Commission has approved China Minsheng Bank's plan to issue convertible bonds and new H-shares 'in principle,' the bank said in a filing on Thursday.
The mainland's first non-state lender said in February that it planned to raise up to 29.4 billion yuan (HK$36 billion) by selling about 20 billion yuan of convertible bonds in Shanghai and up to 1.65 billion new H-shares in Hong Kong. Minsheng said it planned to use the proceeds to improve capital levels and its core capital, which includes retained earnings and common equity.
Minsheng's core capital adequacy ratio has been at relatively low levels, 7.75 per cent at the end of June, down 32 basis points from December last year. 'The bank needs to lift its core CAR to at least around 9 per cent in the future,' said Stanley Li, an analyst at Mirae Asset Securities in Hong Kong.
Minsheng's announcement comes at a time when Chinese banks have boosted efforts to raise capital, especially through subordinated debt. Chinese banks have announced plans to raise about 500 billion yuan this year.
China Citic Bank said this week it planned to sell yuan-denominated bonds worth up to 30 billion yuan in Hong Kong as early as the first half of next year to support its business growth. It also completed a 26 billion yuan rights issue in June.
Agricultural Bank of China completed a 50 billion yuan subordinated debt issue in June. China Merchants Bank was reported in July to be planning to raise at least 10 billion yuan via a share placement in Hong Kong.
'We've seen a lot of capital-raising by major banks in China lately, as they look to build up their capital position both to enable them to continue to lend strongly and meet higher regulatory capital requirements,' said Simon Topping, head of financial risk management at KPMG.
The combination of needing capital to support new lending plus capital to meet higher regulatory requirements means the banks are going to need an enormous amount of capital in the coming years, said Topping.
'Given the risks from the growth of loans in 2009-2010, the regulator would want the banks to have more capital,' said Michael Werner, a senior analyst at Sanford C. Bernstein.
Werner added that banks issuing subordinated debt wouldn't necessarily make for bad deals for investors, as it does not dilute shareholders' interest and yuan bonds have been very popular among Hong Kong investors.
Li said a large proportion of the risks were related to local government financing vehicles - companies set up to borrow on behalf of local governments, who are restricted from doing so themselves.
Shares of Minsheng Bank dropped 10 cents, or 1.53 per cent, to HK$ 6.45 in Hong Kong yesterday. The bank's share price has dipped 9.15 per cent since August 1.
China Minsheng Banking Corp's increase in profit in the first half of 2011 from the first half of 2010.