Proceeds from the financial instrument will be used to expand lending capacity ahead of 10b yuan IPO Industrial Bank, in which Hang Seng Bank has a minority stake, will offer up to 18 billion yuan of financial bonds for sale this week to expand its long-term lending capacity before going public with a 10 billion yuan A-share offering next year. Financial bonds, which must be held until maturity, are a tool used in the mainland to increase lending ability and stabilise cash flow of financial institutions. The Fujian-based bank said it would put five billion yuan of five-year bonds and 10 billion yuan of 10-year bonds on sale in the national interbank market on Friday. It has the option to increase the total by three billion yuan. 'The capital raised will be invested in good quality projects to maintain our return on assets,' the bank said. China Lianhe Credit Rating has assigned its highest AAA rating to the bonds. Industrial Bank said it would announce the coupon rates tomorrow. Financial bonds' coupon rates are usually higher than treasury bond and deposit rates but lower than the bond rates of non-financial institutions. In October last year, the bank attracted 14.6 billion yuan of subscriptions for 10 billion yuan of three-year bonds at 2.15 per cent. That sale and this week's sale come off the 35 billion yuan bond quota granted to the bank by regulators. 'We have talked to many institutional investors who are interested in the bonds,' said a source at Citic Securities, one of the two sponsors of this week's sale. The sale will be one of the largest by mainland commercial banks in recent years. Besides Industrial Bank, only China Merchants Bank, Shanghai Pudong Development Bank and China Minsheng Banking Corp have sold financial bonds. Financial bonds were 'an active liability, compared with deposits which usually have a flexible redemption period', said Wu Yonggang, an analyst with Guotai Junan Securities. Minsheng, the country's only privately controlled bank, issued 10 billion yuan of three-year financial bonds at 2.88 per cent in May, the biggest such sale to date. Fund management companies, insurers and brokerages all invest in the interbank bond market. Industrial Bank, which had assets of 532 billion yuan at the end of June, said it made a profit of 1.7 billion yuan for the first six months of this year and 2.5 billion yuan for the previous full year. It said its revenue rose 43 per cent to 9.3 billion yuan last year because of higher returns on assets and bond investments. 'The profitability of Industrial Bank could be almost the same as that of A share-listed China Minsheng Bank,' Mr Wu said. 'The bank has made big progress in recent years.' Hang Seng Bank owns 16 per cent of Industrial Bank, the Singapore government holds 5 per cent and the World Bank's International Finance Corp has 4 per cent.