China Minsheng Bank in shares refinance
China Minsheng Banking Corp has jump-started its mega-refinancing deal that is expected to raise up to HK$11.3 billion to cover potential bad loans and satisfy the regulator's tightened capital requirements.
The share placement added to evidence that mainland lenders are hungry for capital infusions amid rising risks of a bad debt crisis.
Trading of China Minsheng's shares in Hong Kong and Shanghai were suspended yesterday as the Beijing-based lender said in a statement that it was making arrangements for the H-share refinancing.
The bank plans to float 1.65 billion H shares at HK$6.65 to HK$6.86 each, which represents a four to seven per cent discount to its closing price of HK$7.15 on Friday.
The fund-raising came just less than two weeks after its bigger rival Bank of Communications announced it would place 12.4 billion shares on the Hong Kong and Shanghai stock exchanges, targeting combined proceeds of 56.6 billion yuan.
China Minsheng also attempted to net 20 billion yuan in Shanghai through a convertible bond issuance.
'It is a new round of massive fund-raising by Chinese banks as they are pressured to meet upcoming higher capital requirements by the regulator,' said Zhongde Securities analyst She Minhua. 'The banks' fund-raisings are also a sign that the regulator is becoming increasingly tough on overseeing banks' assets quality.'
Mainland banks' deteriorating assets following an 18 trillion yuan loan binge in 2009 and 2010 have prompted Beijing to heighten capital adequacy levels so as to ward off potential bad debt risks.
The China Banking Regulatory Commission is expected to set a minimum core capital ratio for major banks at 9.5 per cent in the second half of this year from the current 4 per cent, according to people with knowledge of the regulator's thinking.
China Minsheng's core capital ratio stood at 7.87 per cent at the end of last year, the lowest among nine Hong Kong-listed mainland banks.
The lender added 200 million yuan of non-performing loans last year while its loans classified as 'special mention' increased 3.2 billion yuan, 32 per cent more than the year earlier.
'The asset quality issue has showed signs of shaping up,' Guotai Junan Securities analyst Qiu Guanhua said in a research note. 'Lending and deposit growth also lagged behind the domestic counterparts.'
Mainland banks have raised more than US$272 billion through bond and equity issues globally since 2005, according to data provider Dealogic.
Since late 2009, when Beijing unveiled its infrastructure-focused stimulus package, Chinese banks freely granted credits to state-owned companies to fund a construction spree.
Easy credit was believed to have fuelled a soaring number of overlapping projects that wouldn't be able to generate enough cash to repay banking loans.
Beijing began to control banks loans early last year, amid worries of a bad-debt crisis, but the asset quality of the banking sector was still surrounded by suspicions.
'Banks' loan problem is seen as a landmine and could eventually spoil the mainland economy,' said a Hong Kong-based hedge fund manager.
Smaller city commercial lenders are also rushing to raise funds to boost their capital.
A total 14 city commercial banks have applied to launch A-share initial public offerings, likely to net nearly 300 billion yuan from the mainland market, according to Hongyuan Securities.