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Bank of China issues convertible bonds
By Leo Zhang and Maggie Zhang |
May 31, 2010, Monday
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Online Edition
Online Edition
BANK of China said today it plans to issue 40 billion yuan (US$5.9 billion) worth of bonds convertible into yuan-backed A shares, leading its rivals in a fund-raising spree to replenish capital.
The Beijing-based lender is set to kick off subscriptions for the bonds on Wednesday, while existing shareholders will be given the priority to purchase the debt, it said in a statement to the Shanghai stock exchange.
"The bond issuance underscores the urgency for the bank to shore up capital," said Wang Changjun, an analyst with Essence Securities Co. "But we believe growth of the banking industry is under a downward spiral and the bond's valuation may be lower than the historical average."
Bank of China's move came after a slew of its rivals have announced large fund-raising proposals as financial authorities demanded an improvement in capital strength after a lending frenzy last year.
More than a dozen Chinese banks are expected to raise more than US$60 billion between them in the next few months. Among them, Agricultural Bank of China will launch an US$30 billion initial public offering as early as July.
Industrial & Commercial Bank of China has proposed an additional equity sale worth US$7 to US$10 billion while China Construction Bank announced a plan earlier in May to collect up to US$11 billion in a rights issue.
Smaller lenders, including Bank of Communications, China Merchants Bank, Shenzhen Development Bank and Huaxia Bank, have also unveiled fundraising proposals, mostly rights offerings and private placements.
Bank of China said that the debt will be convertible into its Shanghai-listed shares six months from the completion of the issuance at a price of 4.02 yuan apiece. The bank's shares in Shanghai added 2 percent today at 4.09 yuan.
Due to a proposed 2009 dividend payment of 0.14 yuan per share on June 3, the conversion price for the bonds will become 3.88 yuan per share from that date, the bank said.
Li Lihui, president of Bank of China, said late in May that the lender expected to raise more capital from the Hong Kong stock market by the end of this year as part of its fund-raising plans.
Bank of China's capital adequacy ratio stood at 11.09 percent as of March 31, down from 11.14 percent at the end of last year.
"Issuing convertible bonds could attract more long-term investors and ease the impact on the liquidity in the near term," said Liu Yu, an Orient Securities Co trader. "But the domestic market doesn't look strong enough to digest all these stock sales."
Media reports have said that China Construction Bank may delay its planned fund-raising move to early next year due to market uncertainties.
The Beijing-based lender is set to kick off subscriptions for the bonds on Wednesday, while existing shareholders will be given the priority to purchase the debt, it said in a statement to the Shanghai stock exchange.
"The bond issuance underscores the urgency for the bank to shore up capital," said Wang Changjun, an analyst with Essence Securities Co. "But we believe growth of the banking industry is under a downward spiral and the bond's valuation may be lower than the historical average."
Bank of China's move came after a slew of its rivals have announced large fund-raising proposals as financial authorities demanded an improvement in capital strength after a lending frenzy last year.
More than a dozen Chinese banks are expected to raise more than US$60 billion between them in the next few months. Among them, Agricultural Bank of China will launch an US$30 billion initial public offering as early as July.
Industrial & Commercial Bank of China has proposed an additional equity sale worth US$7 to US$10 billion while China Construction Bank announced a plan earlier in May to collect up to US$11 billion in a rights issue.
Smaller lenders, including Bank of Communications, China Merchants Bank, Shenzhen Development Bank and Huaxia Bank, have also unveiled fundraising proposals, mostly rights offerings and private placements.
Bank of China said that the debt will be convertible into its Shanghai-listed shares six months from the completion of the issuance at a price of 4.02 yuan apiece. The bank's shares in Shanghai added 2 percent today at 4.09 yuan.
Due to a proposed 2009 dividend payment of 0.14 yuan per share on June 3, the conversion price for the bonds will become 3.88 yuan per share from that date, the bank said.
Li Lihui, president of Bank of China, said late in May that the lender expected to raise more capital from the Hong Kong stock market by the end of this year as part of its fund-raising plans.
Bank of China's capital adequacy ratio stood at 11.09 percent as of March 31, down from 11.14 percent at the end of last year.
"Issuing convertible bonds could attract more long-term investors and ease the impact on the liquidity in the near term," said Liu Yu, an Orient Securities Co trader. "But the domestic market doesn't look strong enough to digest all these stock sales."
Media reports have said that China Construction Bank may delay its planned fund-raising move to early next year due to market uncertainties.
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