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SPECIALIST mainland bank, the Agricultural Bank of China (ABC), is pushing ahead with a Japanese debt issue - its first international bond - even though its mainland peers could face a ratings downgrade.

  ABC is seeking to raise 15 billion yen (about HK$1.25 billion) through a maiden Samurai bond arranged by Daiwa Securities. A Samurai bond is a yen-denominated bond issued in Japan by a foreign borrower.

  Moody's Investors Service is reviewing the A3 rating for long-term deposits and other foreign currency senior obligations, and prime-2 short-term ratings of Bank of China, People's Construction Bank of China (PCBC) and Bank of Communications (BCom).

  It is also reviewing the A3 long-term deposits and prime-2 short-term ratings of Industrial and Commercial Bank of China (ICBC).

 All but BCom are specialised banks, which Beijing intends to spearhead the move towards commercial banking.

  The negative review last week prompted Bank of China (BOC) to delay a HK$5 billion debt issue which attracted almost 50 lending banks, while PCBC has reportedly postponed an offshore issue of at least US$100 million.

  BOC, one of Beijing's original 10 borrowing windows, has sold US$3.9 billion of foreign bonds in the past 10 years, or 40 per cent of China's total offshore bonds.

  A spokesman for Daiwa in Tokyo was upbeat about ABC's prospects with its Samurai bond.

  He said ABC was rated AA-minus by Nippon Investment Services (NIS), a Japanese rating agency, although it was not rated by Moody's.

 'I don't think there is any influence over this [deal's] pricing because this is a Japanese rating company.'   He said ABC was offering a coupon of 4.3 per cent for five years and the issue price was par.

  Asked how the ABC issue was going, the Daiwa spokesman said 'not so bad and not so good - the market is a bit down'.

  Daiwa was placing the paper with a good range of Japanese investors, including traditional institutional buyers and individuals, he said.

 Of the four mainland banks named by Moody's last week, only ICBC was rated by NIS, carrying an AA-minus rating from the Japanese agency, although the Daiwa spokesman said other mainland borrowers carried NIS ratings.

 Tianjin International Trust and Investment Corp and Shandong International Trust and Investment Corp were both rated A-plus, and China Investment Bank was rated AA-minus by NIS.

  Asked about the issue, ABC spokesman Chen Jianjie said from Beijing that the bank had not had a high profile in the past.

  'So we hope to tap the international capital market in the future through our first step in Japan,' Mr Chen said.

  It had not sought a rating from Moody's because it had not been active internationally before, he said.

  Mr Chen admitted that the ABC, like the other specialised banks, had its own problems due to its previous specialisation, but in different areas.

  'Rural credits are characterised by long maturity, high risks and low return.'   In February, Moody's issued a report on the specialist banks, saying they would have to write off 'a significant portion of their huge policy loan portfolios as uncollectables'.

 A ratings downgrade means a rating agency believes the borrower's ability to service interest and principal payments has deteriorated, and lenders generally ask the borrower to offer higher interest to compensate lenders for the higher risk.



Samurai issue to raise $1.25b