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March 15, 2012

A man exits a branch of Bank of Communications Co. Ltd. in Beijing, China. Photographer: Nelson Ching/Bloomberg

A man exits a branch of Bank of Communications Co. Ltd. in Beijing, China. Photographer: Nelson Ching/Bloomberg

Bank of Communications Co., China’s fifth-largest lender, plans to raise about 57 billion yuan ($9 billion) in the world’s biggest share sale since May, said two people with knowledge of the matter.

China’s Ministry of Finance and HSBC Holdings Plc (HSBA), the Shanghai-based bank’s two largest shareholders, will take part in the private placement, the people said, declining to be identified because the information isn’t public.

BoCom joins rivals including Industrial Bank Co. (601166) in seeking funds after a two-year, $2.7 trillion lending spree sapped their finances. China’s banking regulator is planning tougher capital requirements for the biggest lenders to fend off rising credit risks.

“BoCom will become the most-capitalized bank among big lenders in China after this massive sale,” said Sheng Nan, a Hong Kong-based analyst at CCB International Securities Ltd., who estimated that the offering will boost the lender’s core capital adequacy by about 2 percentage points. “Participation of the government shareholder and HSBC ensures this is a long- term investment and there will be no additional stock supply to depress the market.”

The China Banking Regulatory Commission said in August that it will require the country’s largest, or so-called systemically important, lenders to have a minimum capital adequacy ratio of 11.5 percent by the end of 2013. Smaller banks will be required to have at least 10.5 percent under “normal conditions” by the end of 2016, the CBRC said.

Capital Adequacy Declines

BoCom’s capital adequacy ratio fell to 11.89 percent as of Sept. 30 from 12.36 percent at the beginning of 2011, according to its third-quarter earnings report. The bank’s core capital adequacy ratio dropped to 9.24 percent, lower than the 9.5 percent mandatory minimum under the new capital plan.

At $9 billion, BoCom’s share sale would be the largest since Glencore International Plc raised $9.9 billion in an initial public offering in May, according to data compiled by Bloomberg.

Chinese regulations define a private placement as a share sale to no more than 10 designated investors at a price of at least 90 percent of the market value.

Margrit Chang, a spokeswoman for HSBC in Hong Kong, declined to comment, as did a BoCom spokesman in Shanghai. The bank suspended trading in its shares today, saying it is planning a private placement in both Hong Kong and Shanghai, according to a filing to Hong Kong’s stock exchange.

Record Profit

Shares of BoCom have gained 14 percent this year to close at HK$6.19 yesterday. The stock traded 5.8 times its estimated earnings in 2012 and 1 times estimated book value for the year, according to data compiled by Bloomberg.

BoCom may report later this month a record profit of 48.3 billion yuan for 2011, an increase of 24 percent from a year earlier, according to the average estimate of 18 analysts in a Bloomberg survey.

Industrial Bank, a Chinese lender part-owned by Hang Seng Bank Co., said earlier this month it will raise as much as 26.4 billion yuan in a private placement.

Standard & Poor’s warned this week that China’s banks could face a slump in 2012 as the economy slows, property prices fall and “sizable” local government debt requires refinancing.

London-based HSBC owns 18.63 percent of BoCom, while China’s Ministry of Finance held 26.52 percent at the end of the third quarter, according to BoCom’s earnings report.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net; Cathy Chan in Hong Kong at kchan14@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net


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