Merchants Bank wins nod for rights issue

Shenzhen lender gains approval to raise 20 billion yuan to replenish capital

PUBLISHED : Wednesday, 24 July, 2013, 12:00am
UPDATED : Wednesday, 24 July, 2013, 3:49am

China Merchants Bank, the mainland's sixth-biggest lender by assets, said yesterday it had obtained Beijing's approval to raise about 20 billion yuan (HK$25.2 billion) through a long-awaited rights issue, becoming the first mainland bank to get the approval to replenish capital following a credit crunch late last month.

The Shenzhen-headquartered bank said in an exchange filing last night that it had received approval from the China Securities Regulatory Commission to issue about 3.07 billion new A shares to its existing shareholders.

Under the plan, it will issue 2.2 shares for every 10 shares held by investors.

The lender first announced two years ago that it planned to raise as much as 35 billion yuan in a rights offer to both its A and H-share investors on the mainland and in Hong Kong.

"Merchants Bank's rights issue plan offers a clear signal to investors to get ready for further signs of the regulator's intention to lift the [initial public offering] floodgate in August at the earliest," said Alma Yang, a portfolio manager at Shenyin Wanguo Asset Management.

The mainland's listing market has been virtually shut since October last year, partly because CSRC chief Xiao Gang has sent clear signals that he wants a crackdown on insider trading and market manipulation.

Concerns about the reopening of the market has drawn attention from jittery investors on the mainland, who are sceptical about a further drain on liquidity after the country's mutual funds posted capital outflows for nine consecutive weeks.

Beijing gave its written approval to the rights issue in September 2011 but the implementation was not cleared until yesterday.

According to a report by ChinaScope Financial, a Hong Kong-based research firm, mainland banks need to raise US$5 billion to US$10 billion in the next two years to keep capital ratios at current levels.

"These impacts are likely to worsen further as banks will have less interest income to cover the losses from increased non-performing loans emerging from the banking system," ChinaScope said.

In yesterday's filing, the lender said it would implement the rights issue "as soon as possible within the validity period of six months" after gaining approval.

The bank's shares rose 1.94 per cent to close at 11.06 yuan in Shanghai yesterday. In Hong Kong, they climbed 4.48 per cent to HK$13.54.

The CSRC said in April 2011 that it would raise the minimum capital adequacy requirement for "non-systematically important banks" to 10.5 per cent from 8 per cent. Lenders' minimum core capital adequacy requirement was more than doubled to 8.5 per cent from 4 per cent.

At the end of last year, Merchants Bank reported a capital adequacy ratio of 12.14 per cent and a core capital adequacy ratio of 8.49 per cent.

On a separate note, China Minsheng Bank, the mainland's largest non-state-owned lender, was still in need of fresh capital replenishment and had to further enhance liquidity, Dagong Global Credit Rating said.

Deutsche Bank said yesterday: "The excess banking sector liquidity in China is unevenly distributed in favour of the big banks, with the smaller and unlisted commercial banks becoming increasingly marginalised as the economy develops further."