Banking & Finance

China’s AgBank shares surge 5pc on planned record US$15.8 billion private placement

Massive deal compares with total IPO fundraising on the A-share market last year of US$36.36 billion

PUBLISHED : Tuesday, 13 March, 2018, 12:34pm
UPDATED : Tuesday, 13 March, 2018, 5:01pm

Shares in Agricultural Bank of China surged more than 5 per cent on Tuesday in Hong Kong after the country’s third largest lender by assets announced plans to raise 100 billion yuan (US$15.8 billion) through private placement, which would be the A-share market’s largest ever private placement, if fully implemented.

Its Hong Kong-listed shares rose to HK$4.71 by close, while its Shanghai-traded stock advanced 2.5 per cent to 4.13 yuan. The firm led the banking sector higher in both markets.

On the Hong Kong exchange, bank stocks as a whole rose 0.4 per cent on average with HK$16.8 billion worth changing hands, representing 15 per cent of total market turnover. In mainland China, the sector had pared gains by close, but still up 0.1 per cent.

AgBank said late on Monday it will issue a maximum 27.473 billion A-shares to seven institutions.

In comparison, total IPO fundraising on the A-share market last year was 230 billion yuan (US$36.36 billion), according to data compiled by Wind.

The seven institutions are: Central Huijin Investment, which is owned by the Chinese central government; China’s Ministry of Finance; China National Tobacco Corporation (CNTC); Shanghai Haiyan Investment Management; Zhongwei Capital; CNTC Hubei Provincial Tobacco Corporation; and New China Insurance.

Central Huijin plans to subscribe for 40 billion yuan worth of shares, while the finance ministry has offered to buy 39.2 billion yuan worth, the two largest potential buyers. Both figures coincidentally represent their current stakes in the bank, at 40 and 39.2 per cent respectively, with those remaining unchanged after the placements.

“The proceeds will be used entirely to replenish tier-1 core capital,” the company said, a core measure of a bank’s financial strength, consisting primarily of ordinary shares and disclosed reserves.

On Tuesday, Bank of America Merrill Lynch maintained a “Buy” rating on AgBank’s H-shares, with a target price of HK$4.28. The private placement will boost AgBank’s share price, but have a mixed impact on its peers, as it could trigger another round of capital restructuring, it added.

Credit Suisse also maintained its “Outperform” rating on the stock and set the target price at HK$5.40, estimating the fundraising will boost AgBank’s core capital ratio by 80 percentage points.

China’s top five financial regulators, meanwhile, jointly issued a guidance on Monday saying the authorities will support commercial lenders in developing “innovative tools to replenish capital [levels]” and broaden access to new funding, both at home and overseas.

The statement came after the regulators recently relaxed bad debt provisions for Chinese banks and broadened the scope of eligible capital instruments.

“China’s latest bank regulations may support debt resolution,” said Fitch Ratings.

Beijing’s previous crackdowns on shadow banking have consumed bank capital and dragged on profitability, limiting some lenders’ ability to lend over the coming years, it added.

“The latest measures appear to be aimed at providing some relief.”