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February 25, 2010

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BoCom plans US$6.2b rights

CHINESE banks are lining up to raise capital through new shares offering or bond sales to plug a capital shortage due to their aggressive lending which resulted in a spiraling loan growth in 2009.

The Bank of Communications said yesterday that it plans to raise as much as 42 billion yuan (US$6.15 billion) through a rights offering to replenish capital. It could be the biggest additional share sale by a Chinese company since PetroChina raised 66.8 billion yuan in a stock sale in October 2007.

Shanghai-based BoCom will offer 1.5 shares for every 10 held in a rights offer for investors in Shanghai and Hong Kong, the bank said in a filing to the Shanghai Stock Exchange yesterday.

"The bigger-than-expected maximum scale of the rights offer can blow the bank's performance in the equity market in the short term," said Fan Kunxiang, a Haitong Securities Co analyst. "However, if BoCom does raise the maximum 42 billion yuan, it will cement the bank's capital base for at least five years."

The plan can boost the bank's core capital adequacy ratio by 2 percentage points to 10.5 percent, Fan estimated. The average CAR for Chinese banks is 9 to 10 percent.

The offer is pending shareholder and regulatory approval and BoCom hasn't disclosed the timing and pricing of the offer.

China Merchants Bank on Tuesday said its board has approved a rights offer that can raise as much as 22 billion yuan. The Bank of China said in late January that it plans to sell up to 40 billion yuan of convertible bonds to boost capital.

"More banks are expected to join the capital-raising line on a triple whammy of tighter regulatory capital requirement, need to expand operations and a rapid credit growth," said She Minhua, a Haitong Securities Co. "2010 is a key year for banks to raise capital."

Banks in China extended a record 9.59 trillion yuan of new loans in 2009 - nearly doubled the 5 trillion yuan target.

Speculation is rising the China Banking Regulatory Commission will further tighten credit growth.

The CBRC has already warned it will curtailed banks' expansion and limit their operations if they fail to meet CAR requirement. A higher the CAR means a stronger a bank.


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