Agricultural Bank, BOC to raise up to US$29b worth of preference shares

Other banks likely to seek approval to issue shares following Agricultural Bank and BOC

PUBLISHED : Friday, 15 August, 2014, 9:41am
UPDATED : Saturday, 16 August, 2014, 12:10am

Agricultural Bank of China and Bank of China have been cleared to raise up to US$29 billion worth of preferred stock in a sector-wide push to meet international capital-adequacy requirements.

The China Banking Regulatory Commission approved BOC to issue 600 million onshore preferred shares worth up to 60 billion yuan (HK$75.6 billion) as well as US$6.5 billion worth of preferred shares in an offshore offering, the bank said in filings posted on the Hong Kong stock exchange website on Thursday night.

Agricultural Bank gained approval to issue 800 million preferred shares worth up to 80 billion yuan, it said in a separate filing.

Many Chinese banks have been thinking about how they can raise core capital

Earlier this year the two banks announced plans to raise a total of up to 300 billion yuan, a portion of which would be in preferred shares.

The funds would be added to the state-owned banks' tier-one capital as the mainland's biggest financial institutions seek to boost their capital-adequacy ratios before a 2018 deadline to fall in line with a set of international financial guidelines known as Basel III.

Industrial and Commercial Bank of China said last month it had been granted permission to issue up to 45 billion yuan of preferred shares domestically and up to 35 billion yuan worth of preferred shares offshore.

Other mainland banks were likely to seek approval to issue preferred stock, analysts said.

"It's not just these banks. Since last year, many Chinese banks have been thinking about how they can raise core capital," said Sophie Jiang, an analyst at Religare Capital Markets in Hong Kong. "We believe the sector needs to add to its core capital … we'll probably see more [preferred share offerings] at other banks."

The mainland adopted the Basel III guidelines last year, which require most banks to maintain a core capital adequacy ratio of 9.5 per cent. ICBC and BOC will need to maintain that ratio at 10.5 per cent because of their international reach.

In April, the CBRC approved a plan that would allow mainland banks to issue preferred shares, which have qualities of both equity and debt, as a means of supporting core capital.

Ping An Bank said in a regulatory filing to the Shenzhen stock exchange last month that it planned to issue 20 billion yuan in preferred shares as well as 10 billion yuan in common equity. Beijing-based Citic Bank and Guangzhou-based Guangfa Bank have also said they plan to offer preferred shares.

Several mainland banks have also issued tier-two capital bonds in recent weeks in what analysts said was an attempt to protect against growing risk in the mainland economy.

Agricultural Bank, China Construction Bank and Export-Import Bank of China planned to issue up to 65 billion yuan in tier-two capital bonds on Friday, according to mainland media reports. China Construction Bank and BOC issued 60 billion yuan earlier in the week following bond issuance from BOC and ICBC worth 50 billion yuan last week.

In June, the CBRC noted that banks' non-performing loan levels had jumped to 1.08 per cent, from 1.04 per cent at the end of March.