Merchants Bank cash call sparks sector sell-off in China
Regulator's approval of lender's 20b yuan fundraising plan prompts investor concerns that more mainland banks may follow suit
The shares of mainland banks came under pressure yesterday amid fears of a flood of equity fundraisings.
Earlier this week, the China Securities Regulatory Commission approved for the first time this year a bank's equity capital raising plan.
It's likely we'll see more fundraising attempts by mainland banks in the next two quarters. Capital constraints are prevalent in all Chinese banks as a result of their capital-consuming model of development
China Merchants Bank, the mainland's sixth-largest lender by assets, said on Tuesday it would issue about 3.07 billion new A shares.
Mainland banks faced a liquidity crunch late last month, with interbank lending rates soaring to record highs.
Merchants Bank's rights issue, estimated to raise 20 billion yuan (HK$25.2 billion), was long-awaited, with the bank having announced the plan in 2011.
"It's likely we'll see more fundraising attempts by mainland banks in the next two quarters," said Guo Tianyong, the head of the China banking research centre at Beijing's Central University of Finance and Economics. "Capital constraints are prevalent in all Chinese banks as a result of their capital-consuming model of development."
But an analyst with a leading mainland investment bank said further equity capital raisings by banks were unlikely to happen this year as the necessary procedures were time-consuming.