Agricultural Bank of China aims to raise 80b yuan

Agricultural Bank's sale of preferred shares will be biggest since trial's launch

PUBLISHED : Friday, 09 May, 2014, 1:14am
UPDATED : Friday, 09 May, 2014, 1:14am

Agricultural Bank of China is seeking 80 billion yuan (HK$100.7 billion) in the mainland's biggest sale of preferred stock since the government allowed companies to issue the securities under a trial programme two months ago.

Its board approved a plan to sell as many as 800 million preferred shares through private transactions on the mainland, the bank said in a statement to Hong Kong Exchanges and Clearing yesterday.

The sale would bolster Agricultural Bank's capital position, which is the weakest among China's top five lenders, and allow it to conform to stricter requirements introduced in January last year. The four biggest banks will face a capital shortfall of US$87 billion under the new rules by 2019, Mizuho Securities Asia estimated in a March report.

Preferred shares, available under a trial approved by regulators two months ago, permit banks to raise capital without selling common equity. The securities can be converted into common stock if capital ratios fall below a certain level.

Agricultural Bank is the third firm to propose a preferred stock sale. Last month, Shanghai Pudong Development Bank said it would raise up to 30 billion yuan, while Xinjiang-based Guanghui Energy said it planned to sell five billion yuan of the securities.

Under the new rules, systemically important banks need to have a minimum tier-one ratio of 9.5 per cent, with overall buffers of 11.5 per cent before the end of 2018, the China Banking Regulatory Commission said.

Agricultural Bank's capital adequacy ratio was 11.87 per cent at the end of March, while its tier-one ratio was 9.48 per cent. Both levels are the lowest among the five biggest Chinese banks, data shows.

After the sale, Agricultural Bank's tier-one and total capital ratios may rise by about 0.83 percentage point, based on its capital levels at the end of 2013 and assuming a 6 per cent coupon rate, according to the statement.

It plans to sell the first batch of securities within six months after receiving regulatory approval.