Fund managers say the $9.3 billion issue has not been properly discussed with tradeable shareholders China Merchants Bank yesterday held meetings with Beijing-based fund managers in a bid to quell discontent over a proposed 10 billion yuan (HK$9.37 billion) convertible-bond issue that is threatening to turn the star of a new generation of state-owned enterprises into an example of China's corporate governance deficiency. The Shenzhen-based lender offered to revise its plan for what would be China's largest convertible bond issue to reduce the dilution effect on shareholder interests, said fund managers at the talks. The meetings came after fund managers lodged a joint and public protest during a bank briefing on September 12. They accused the lender of announcing the plan without proper prior consultation with tradeable shareholders and trying to raise more funds than were needed at the expense of diluting shareholders' interests. They also argued the plan would unfairly benefit holders of the bank's non-tradeable shares who had paid a fraction of its publicly quoted share price for 73.7 per cent of its shares. During separate visits to China Asset Management, Changsheng Fund Management and Harvest Fund Management yesterday, the bank offered to either place a bigger tranche of the convertible bond issue to existing shareholders or raise the price at which the bonds could be converted into shares, a fund manager said. China Merchants board secretary Shao Zuosheng was accompanied by investment bankers from China International Capital Corp, which underwrote the lender's 10.95 billion yuan A-share initial public offering (IPO) last year and also devised the convertible bond plan. China Merchants is among a few Chinese blue chips - on a market with 1,259 listed companies - widely held by mainland institutional investors. At least 51 of China's 86 mutual funds had a combined 6.6 per cent holding in the bank by June 30. The bank plans to issue the convertible bond to boost its capital base, stretched thin by rapidly expanding lending. Assuming full conversion at 10 yuan, the proposed convertible bond issue would enlarge the bank's share capital by about 17.5 per cent. The size of the proposed issue is exceeded only by the country's largest equity IPOs. The bank's share price had dived 12.4 per cent since the plan's announcement on August 26, hitting public shareholders the hardest. The fund manager said: 'They are willing to make some revisions. But we want a completely different plan.' Fund managers want the bank to issue subordinated financial bonds instead, or at least halve the size of the convertible bond issue. Another fund manager said: 'At least so far, I don't see a drastic revision coming.'