China Merchants up on rights issue news

Mainland bank's shares climb amid talk long-awaited plan to raise funds imminent

PUBLISHED : Wednesday, 14 August, 2013, 12:00am
UPDATED : Wednesday, 14 August, 2013, 3:19am

China Merchants Bank's stock jumped 7.2 per cent to HK$14.24 yesterday after it was reported that the bank might announce a long-planned rights issue on Friday along with its interim results.

The bank would raise 35 billion yuan (HK$44 billion) by offering 1.74 shares for every 10 existing shares, for at least 9.29 yuan each on the Shanghai stock exchange and equivalent value in Hong Kong dollars on the H-share market, Apple Daily reported, citing unidentified people.

Merchants Bank said last month it had received approval from the China Securities Regulatory Commission to issue about 3.07 billion new A shares to its existing shareholders.

The bank had postponed the sale twice in the past two years because of weakness in the market.

The planned rights issue is a sign of mainland banks' hunger for capital and may trigger fund-raising efforts by other banks, analysts suggested.

Mizuho Securities upgraded Merchants Bank's rating to neutral yesterday from underperform and raised its price target to HK$15 from HK$11.

It estimated the rights issue would boost the bank's core tier 1 capital ratio to 10.07 per cent, double the minimum required by regulators, from 8.6 per cent in the first quarter.

The bank's capital adequacy ratio stood at 11.41 per cent on March 31, Bloomberg reported, noting that both ratios, while higher than the regulatory requirements, are the second-lowest among nine Hong Kong-listed mainland banks.

"The rapid growth of assets at mainland banks has eaten up a portion of capital, and they have to find ways to refill," said a Hong Kong-based analyst who declined to be named.

He said Agricultural Bank of China and China Minsheng Bank would be among those with a greater need for funding. Among the Big Four, Agricultural Bank has the weakest capital adequacy ratio, 11.98 per cent in the first quarter, while the others had ratios above 13 per cent.

But James Antos of Muzuho said he expected no other mainland banks listed in Hong Kong to raise funds before the end of the year, considering the time needed to get approval from the mainland regulators.

A spokeswoman for the bank declined to comment on the matter.