China Merchants Bank Co. won approval to sell shares in Hong Kong, clearing the way for a 35 billion-yuan ($5.7 billion) offering that may be the world’s second-largest this year.
China’s sixth-biggest bank by assets was given permission by the China Securities Regulatory Commission to sell about 680 million shares in Hong Kong to existing shareholders, it said in a statement yesterday. The Shenzhen-based lender already has regulatory approval to sell 3.07 billion yuan-denominated shares in Shanghai.
Shares of Merchants Bank rose for a fifth day in Hong Kong trading, reversing earlier losses and following other mainland stocks higher. Chinese banks have announced plans this year to raise as much as 290 billion yuan from share sales and borrowing, as regulators tighten capital rules and policy makers crack down on the use of short-term financing.
“Investors are likely to support the sale because of China Merchants Bank’s excellent performance in retail banking,” said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp. “The market may also be worried that other banks will tap the equity market for funding.”
Shares in the bank rose 2.1 percent to HK$14.68 at the midday trading break in Hong Kong, after losing as much as 2.9 percent. The city’s benchmark Hang Seng Index gained 0.5 percent.
Merchants Bank’s capital-adequacy ratio stood at 11.41 percent as of March 31 under new capital requirements that took effect at the beginning of this year, with a core Tier 1 ratio of 8.6 percent. While both measurements are higher than the minimum regulatory requirement, they are the second-lowest among nine Hong Kong-listed Chinese lenders.
Merchants Bank, which has postponed the sale twice because of approval delays, said July 22 it planned to raise as much as 35 billion yuan ($5.7 billion).
The sale would improve the bank’s Tier 1 ratio to 10.07 percent, Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., wrote in a note on Aug. 13. He estimated the sale will be completed in six months and increased his recommendation to neutral from underperform.
Chinese lenders’ average capital adequacy ratio stood at 12.24 percent at the end of June, down 4 basis points from three months earlier, according to the China Banking Regulatory Commission. That came after banks advanced 5.1 trillion yuan of new loans in the first half, an increase of 5 percent from a year earlier and the second-highest for the first-half period on record, according to central bank data.
If Merchants Bank’s share sale raises the maximum amount, it would be the second-largest this year, after a 747 billion-yen ($7.6 billion) offering of Japan Tobacco Inc. shares by the Japanese government in March.