China Merchants Bank's record-breaking 10 billion yuan (HK$9.37 billion) convertible bond issue has met stiff opposition from mainland fund managers, who have banded together in a rare show of solidarity. Already grappling with stock index volatility, the fund managers are wary of a dilution of their interest and potential negative impact on the share price. Their solidarity in demanding the Shenzhen-based lender either withdraw or scale back the issue was rare in a country where listed companies' often state-owned major shareholders typically wielded unchecked power, analysts said. 'It is rare for fund managers to band together,' Xiangcai Securities trader Tang Yong said. A China Merchants Bank spokesman yesterday declined to comment on the controversy, except to say the lender was considering the issue. Under heavy investor pressure, bank officials are understood to have held meetings yesterday with China International Capital Corp (CICC) - a Morgan Stanley mainland joint venture which not only underwrote the bank's 10.95 billion yuan initial public offering (IPO) last year but also helped draw up the latest bond plan. Last month, China Merchants Bank's board approved the issuance of 100 million convertible bonds at a par value of 100 yuan each to boost its capital base as rapidly growing lending cut its capital adequacy ratio 5.82 percentage points to 10.56 per cent in the year to June. The issue would be the largest domestic convertible bond issue, breaking China Minsheng Banking Corp's four billion yuan convertible fund-raising record in February. The largest of five mainland-quoted banks by June 30 in total assets, China Merchants Bank is one of a few blue chips - of 1,259 mainland-listed companies - widely held by the country's expanding rank of institutional investors. At least 51 of China's 86 mutual funds had holdings in it by June 30, said a mainland fund analyst. In a joint protest letter read by China Asset Management at a China Merchants Bank briefing last Friday, fund managers said the proposed issue - announced only 17 months after its public share offering - put the lender alongside the vast majority of mainland listed firms which used public investors as 'automated teller machines for their reckless fund-raising exercises'. At a time when stock indices are trading at eight-month lows, fund managers are fretting over the size of the issue, similar to the country's largest IPOs. What had upset fund managers was a 6.7 per cent fall in its share price since the plan's announcement on August 26, Haitong Securities analyst Shi Jianmin said. As with most mainland-listed companies, most of China Merchants Bank's shares are non-tradeable state-owned or legal person shares, with mainland conglomerate China Merchants Group its largest shareholder. Only 26.2 per cent of shares are on public float, with fund managers holding a combined 6.6 per cent. Fear that the bank's major investors would override their opposition in the required shareholder vote on the issue provoked fund managers' early drastic reaction to the plan, which would also require regulatory approvals, Mr Tang said. Fund managers suggested that the lender issue subordinated financial bonds instead, which would not increase the number of shares. Alternatively, it could at least halve the size of the convertible bond issue 'for the mutual growth of the bank's share price and operations'.