Ping An Bank Set to Boost Capital by as Much as $4.8 Billion

Ping An Bank Co., a unit of China’s second-largest insurer, plans to replenish its capital by raising as much as 30 billion yuan ($4.8 billion) in a sale of preferred shares and common equity.

The bank will sell as much as 10 billion yuan of yuan-denominated shares to no more than 10 institutional investors including parent Ping An Insurance (Group) Co., the Shenzhen-based company said in an exchange filing yesterday. It may raise another 20 billion yuan selling preferred shares to no more than 200 investors, according to a separate statement.

Ping An Bank is bolstering its capital after China introduced stricter requirements in January 2013, adding to challenges for a banking industry facing slower profit growth and rising bad debts. Shares of Chinese lenders are trading close to record-low valuations, making it harder for them to raise funds through public offerings.

“This comes a bit earlier than the market expected, but given that it’s a high-growth bank and the industry is challenged by margin compression and asset-quality deterioration, it’s better to be prepared,” said Zheng Chunming, a Shanghai-based analyst at Capital Securities Corp., who has a buy rating on the stock. “I won’t be surprised if the bank comes to market again in just a few years.”

Capital Requirements

Shares of Ping An Bank fell 1.3 percent in Shenzhen as of 9:46 a.m. after being suspended yesterday. The stock is trading at 0.8 times estimated book value for 2014 after dropping about 6 percent this year.

Ping An’s Tier-1 capital ratio stood at 8.7 percent at the end of March, close to a minimum requirement of 8.5 percent. The bank aims to keep the level at 9 percent or higher through 2016, it said in yesterday’s statement.

“The preferred shares can alleviate the financial pressure on the bank and enhance its return on equity, and the common shares are necessary but not urgently required,” Huang Jie, a Beijing-based analyst at China International Capital Corp., wrote in a note today, maintaining a buy rating.

Ping An Bank’s net income surged 41 percent in the first quarter to 5 billion yuan and Huang estimates the company’s profit rose about 30 percent in the first half.

In January, Ping An Bank raised 14.7 billion yuan selling shares to its parent. Ping An Insurance plans to buy 45 percent to 50 percent of shares in the banking unit’s latest sale, while its asset-management unit agreed to acquire 50 percent to 60 percent of the preferred shares, according to yesterday’s statements.

Chinese lenders including Bank of China Ltd. and Agricultural Bank of China Ltd. this year have announced plans to raise a total of about 300 billion yuan by selling securities, mostly preferred shares. Bank of Nanjing Co. said yesterday that its shares will be suspended today in Shanghai as it plans a private placement.

— With assistance by Jun Luo

Before it's here, it's on the Bloomberg Terminal.