China Merchants Bank Raises $4.5 Billion in Share SaleBloomberg News
China Merchants Bank Co. raised 27.5 billion yuan ($4.5 billion) in the Shanghai portion of a rights offer, paving the way for it to complete the world’s third-largest share sale this year.
Investors holding 96.4 percent of the Shanghai-traded shares subscribed to the offer, Merchants Bank said in an exchange filing yesterday. The Shenzhen-based lender said last month it planned to raise 34.8 billion yuan by offering 3.07 billion Shanghai-listed shares at 9.29 yuan and 680.4 million traded in Hong Kong for HK$11.68 each. The result of the Hong Kong sale will be announced Sept. 26, the bank said last month.
Merchants Bank kicks off a new round of fundraising by Chinese lenders, who this year have announced equity and bond sales seeking as much as 327 billion yuan amid more stringent capital rules. The sale will help Merchants Bank, the nation’s sixth largest, meet financing needs over five years, speed up growth and cope with growing competition from smaller rivals such as China Minsheng Banking Corp. and Industrial Bank Co.
“We will see a wave of supplementary capital raising in the next two years as subordinated bonds are being disqualified as capital,” said Cheng Jiaoyi, a Shanghai-based analyst at Qilu Securities Co. “China banks are boosting their internal capital generating ability and the interval between each round of fundraising has been prolonged.”
The subscription rate for Merchants Bank’s Shanghai offer was lower than the 97.8 percent received by Bank of Communications Co. in a June 2010 sale that raised 32.7 billion yuan in Shanghai and Hong Kong. In the same month, domestic investors bought 99.3 percent of Industrial Bank’s offer, allowing it to raise 17.9 billion yuan.
Shares of Merchants Bank rose 1.8 percent to HK$14.70 in Hong Kong as of 9:38 a.m. local time. The firm’s stock in Shanghai added 0.2 percent to 10.68 yuan as it resumed trading after being suspended starting Aug. 28.
Merchants Bank’s capital adequacy ratio fell to 10.72 percent as of June 30 from 11.41 percent at the beginning of the year, and its core Tier 1 ratio dropped to 8 percent from 8.34 percent, according to its first-half earnings report. While both measurements are higher than the minimum regulatory requirement, they are the second-lowest among Hong Kong-listed mainland lenders.
Merchants Bank plans to improve its Tier 1 ratio to 9.5 percent and total ratio to 11.5 percent by the end of 2015, President Tian Huiyu told investors at an online roadshow on Aug. 26. The lender in June applied to issue 11.3 billion yuan of new capital instruments to replace subordinated bonds that mature this month and to boost supplementary capital, Vice President Li Hao said during the roadshow.
The Chinese bank reported last month a 13 percent increase in second-quarter profit to 13.3 billion yuan. Its earnings growth for the full-year of 2013 may slow to 4.8 percent from an average 36 percent increase in the past three years, according to consensus analyst estimates in a Bloomberg survey.
Larger lenders Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. have announced plans to raise as much as 60 billion yuan each from new tier-2 capital instruments with a writedown mechanism triggered by a drop in their capital ratios.
Agricultural Bank of China Ltd. plans to sell 50 billion yuan of similar debt, and raise another 40 billion yuan to boost tier 1 capital. Industrial Bank said Aug. 12 it plans to raise 20 billion yuan of supplementary capital and China Citic Bank Corp. said Aug. 28 it plans to raise as much as 37 billion yuan with tier-2 capital instruments.
The Japanese government’s 747 billion-yen ($7.5 billion) offering of Japan Tobacco Inc. shares in March is the largest stock sale this year.
— With assistance by Jun Luo