(Updates with comment from analyst in fourth paragraph.)
July 19 (Bloomberg) -- China Merchants Bank Co., trading at the highest valuation among the nation’s Hong Kong-listed lenders, plans to raise as much as 35 billion yuan ($5.4 billion) in a rights offer in China and Hong Kong.
The country’s sixth-largest lender will offer 2.2 shares for every 10 held by investors, according to an exchange filing yesterday. The stock, which declined 0.2 percent to HK$18.10 by the midday break in Hong Kong, trades at 2.09 times its book value, according to data compiled by Bloomberg. That compares with the 1.69 average for its five larger domestic rivals.
Merchants Bank is bolstering capital as China joins U.S. and European regulators in tightening requirements to curb risks after governments were forced to bail out lenders following the global credit crisis. Local lenders are also raising funds to meet credit demand in China, where new loans in June rose from a year ago even as policy makers raised borrowing costs.
“China Merchants Bank’s rights offer is to help it meet the capital requirements and to support the bank in extending loans,” Wan Li, a Shanghai-based banking analyst at BoCom International Holdings Co., said by telephone today. She rates the stock as a “long-term buy.”
China’s banking regulator said in May that the nation’s systemically important banks will be required to meet a minimum capital adequacy ratio of 11.5 percent by the end of 2013. Banks had an overall capital adequacy ratio of 11.8 percent at the end of March, the China Banking Regulatory Commission said on its website on May 13.
Merchants Bank’s “core capital adequacy ratio is substantially lower than the new regulatory minimum,” the lender said in a Chinese-language statement e-mailed yesterday. Its capital adequacy ratio was 10.9 percent, according to the filing.
The Shenzhen-based lender plans to set the sale price at a later date. Share sales are the “only viable option” as the bank’s outstanding subordinated debt has already exceeded the limit set by the regulatory commission, it said.
“Short-term doubts over the bank’s capital-raising plan have been removed,” said Timothy Li, a Hong Kong-based analyst at Core Pacific-Yamaichi International (H.K.) Ltd. who has a “hold” rating on Merchants Bank. “It’s clear now how much it plans to raise and how.”
China Minsheng Banking Corp., based in Beijing, said in May that shareholders approved a plan to raise as much as $4.5 billion by selling shares and convertible bonds. Rival China Everbright Bank Co. is planning an equity offering in Hong Kong that may raise about $6 billion, while Bank of Beijing Co. has said it plans a $1.8 billion private placement of new shares.
--With assistance from Marco Lui and Bei Hu in Hong Kong. Editors: Chitra Somayaji, Russell Ward
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