Lender plans $9.3b convertible bond issue to shore up capital
China Merchants Bank, the mainland's largest publicly traded lender, is planning to issue up to 10 billion yuan (HK$9.37 billion) in convertible bonds to shore up its capital base, after lending aggressively and boosting profits by 31.5 per cent in the first half.
The intended convertible bond issue, comparable in size to the 11 billion yuan it raised last year in its initial public offering, will also be open for foreign subscription through the qualified foreign institutional investor scheme.
The move comes as the bank yesterday reported a profit of 1.11 billion yuan for the first half to June, up from a restated 842.6 billion yuan a year ago. This was driven by a strong 47.7 per cent surge in interest income to 5.02 billion yuan, from 3.4 billion yuan in the same period last year.
However, the aggressive lending has served to drain the bank's reserve capital, with the capital adequacy ratio falling to 10.56 per cent at the end of June, compared with 12.57 per cent at the end of last year.
While the People's Bank of China mandates that mainland lenders must ensure a ratio of at least 8 per cent, China Merchants would need to maintain its capital reserve 'cushion' if it intends to continue the aggressive expansion of its lending business.