Bank of China Starts Marketing Up to $6.5 Billion Note Sale

Bank of China has begun marketing what may be Asia's biggest sale of bank capital securities.

China's fourth-biggest lender by market value plans to sell as much as US$6.5 billion of offshore preference shares to yield 6.75 per cent, people familiar with the matter said, asking not to be identified.

China's banking giants are shoring up their capital buffers at a record pace as bad loans rise to the highest level since the global financial crisis. Non-performing loans touched a five-year high of 694.4 billion yuan (HK$876.7 billion) on June 30, 1.08 per cent of total advances, making it more urgent for banks to build capital cushions against losses.

Beijing-based Bank of China said it more than doubled the money it set aside for bad loans in the second quarter. It has regulatory approval to issue 40 billion yuan of offshore notes eligible as Tier 1 capital and the entire amount may be sold at once, people familiar said. The lender can also sell as much as 60 billion yuan of Tier 2 notes before the end of next year.

If Bank of China prices more than US$6 billion of securities it will be the biggest-ever single tranche US dollar bank capital sale. Citigroup raised US$6 billion selling 8.4 per cent perpetual notes in April 2008 and Bank of America sold a US$6 billion 8 per cent perpetual in January that year, the data showed.

A deal upwards of US$6 billion would also be the biggest Basel III transaction in any currency.