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Central Huijin Sells 54 Billion Yuan of Bonds to Boost Bank Investments
Central Huijin Investment Co., the state company that controls China’s biggest banks, sold 54 billion yuan ($7.94 billion) of bonds, boosting its sale by 14 billion yuan, according to a person familiar with the sale.
The domestic arm of the nation’s sovereign wealth fund, China Investment Corp., sold seven-year 3.16 percent bonds, and 4.05 percent notes maturing in 2030, according to the website of Chinabond, the official bond clearing house. Huijin had an option to increase the sale from an initial 40 billion yuan.
Huijin said last week it plans to sell a total of 187.5 billion yuan of bonds to “inject capital” into Export-Import Bank of China and China Export and Credit Insurance Corp., known as Sinosure. It also plans to buy more shares in Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., which intend to raise as much as 180 billion yuan through rights offerings.
Chinese policy makers are grappling with risks from last year’s $1.4 trillion credit boom that fueled the nation’s rebound from the global recession. A study by the banking regulator found that domestic banks may struggle to recoup 23 percent of the 7.7 trillion yuan they’ve lent to finance local government infrastructure projects, a person with knowledge of the situation said July 23.
Huijin hopes its investment in the banks will give them time to improve asset quality and clean up bad loan risks, said Zhang Zhiming, head of China research at HSBC Holdings Plc in Hong Kong. Still, the direct transfer of funds keeps risks within the system, making lenders dependent on the government’s ability to bail them out, Zhang said.
‘Key Funding’
“It’s one pocket in, one pocket out,” he said. “In the end this is a fiscal issue. The government remains the largest shareholder, so long as the government’s fiscal condition remains sound, even if you have a debt crisis the government can maintain key funding to the banks.”
The government needs to support bank fundraising plans as the stock and property markets are weak and banks have already issued large amounts of equity, he said. It will also help liquidity in the interbank bond market, he said.
Sale Oversubscribed
There were 40 times the bids on offer for the extra 6 billion yuan above the original offering amount in 2017 notes that Huijin sold, the official Xinhua News Agency said. The 20- year bonds drew bids of 2.7 times the offered amount, with bids over five times for the additional 8 billion yuan, it said.
Huijin set a coupon range for the seven-year bonds of between 2.85 percent and 3.45 percent, according to the Chinabond website. The range for the 20-year notes was 3.87 percent and 4.47 percent.
Seven-year government debt yielded 2.84 percent yesterday, while 20-year bonds yielded 3.85 percent, according to data from Chinabond.
Demand for the notes from banks was strong “because funds raised from the sale will be used to replenish their own capital,” said Shi Lei, a financial analyst at Bank of China, the nation’s third-largest lender. That helped drive yields “to the low side of the previously set range.”
Selling bonds is a first for Huijin, which was set up in 2003 and used the nation’s currency reserves to prop up ICBC and Bank of China. Huijin owned 35 percent of ICBC, 57 percent of China Construction Bank, and 68 percent of Bank of China as of the end of 2009, it said in the Chinabond filing.
China Development Bank Corp., Agricultural Bank of China, China International Capital Corp. and China Galaxy Securities were the main underwriters for Huijin’s bond sale.
--Belinda Cao, Henry Sanderson. Editors: Ed Johnson, Tom Kohn
To contact the Bloomberg news staff on this story: Belinda Cao in Beijing at lcao4@bloomberg.net; Henry Sanderson in Beijing at hsanderson@bloomberg.net.
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