Cover Story-r1:AMM grid in qxp 12/24/09 9:35 AM Page 32
COVERSTORY
Chinalooks
forbillions
tofillbank
fundinghole
Beijingwantsitsmajorfinancialinstitutions
toraisevastamountsofcapitaltosustain
theirlending.Theequitydelugewill
challengetheprioritiesofsovereignwealth
fundsandlargefundmanagersalike.
PamelaTangreports.
C
China’s rulers are not known for their subtlety when it comes to The pipeline of business will dominate the country’s equity deal
finance. Just take a look at the recent strategy of the country’s banks. flow for months to come.
A few years ago, the government injected tens of billions of US dol- “2010 will continue to see substantial FIG [financial institutions
lars from its top three state banks, Bank of China (BoC), China group] issuance, and China will be leading the way in that due to new reg-
Construction Bank (CCB) and Industrial Commercial Bank of China ulatory changes on capital structure and balance sheet,” says Nicolas
(ICBC). It then privatised them through IPOs that broke records for Vong, head of Asia equity capital markets at Barclays Capital.
their sheer scale. The volumes being discussed are huge. Numbers vary but, according
More recently, in early 2009, Beijing pushed the same banks and to a report by BNP Paribas, the country’s 11 largest publicly traded banks
other local institutions to upscale their lending activities by unprece- may need Rmb368 billion (US$54 billion) in new capital to meet 12%
dented levels to support its stimulus spending plans. capital-adequacy ratios.
The nation is now lining up its next industry hammer-blow. Beijing They can raise capital either by new equity, which is core tier-one capi-
wants its banks to launch some of the largest new equity offerings ever tal, or from subordinated debt, which is second-tier capital. For banks
seen in Asia, to shore up increasingly stretched balance sheets. looking to improve their core capital ratio, and that is most of them, rights
offerings look the most likely.
The first such issue is likely to come from China Merchants Bank
HOWMUCHEQUITY10LISTEDCHINESEBANKS
(CMB). On October 19 its shareholders approved up to Rmb22 billion
WILLNEEDIFTIER-ONECAPITALADEQUACY
(US$3.2 billion) in A-share and H-share rights issues. The bank said in a
RATIORAISEDTO9%IN2010
statement on December 12 that it expects to complete the offer before the
end of the year.
8%T1 9%T1 10%T1 Assuming It makes sense for CMB to lead. Bankers believe its high-quality status,
CAR CAR CAR 9%T1CAR plus the fact it is private rather than public, make it the perfect candidate.
ICBC 0.0 10.0 79.7 0.5% Succeed, and it sets a benchmark the state banks will want to improve on.
CCB 1.7 64.2 126.6 4.2% Fail, and Beijing’s reputation suffers no harm.
BOC 0.0 61.5 124.0 5.7% Next is likely to be mid-sized lender Industrial Bank. On December 9, it
BCOM 12.2 34.1 56.0 8.1% obtained shareholder approval to raise Rmb18 billion in a rights share
CMB 8.1 22.5 36.8 6.1% issue.
CITIC 0.0 5.3 18.2 2.3% Heavy hitters such as CCB, BoC and Bank of Communications
SPDB 17.8 29.3 40.7 15.7% (BoCom) are likely to follow. Add the planned listing of Agricultural Bank
IndustrialBank 0.0 1.1 10.3 0.6% of China, the fourth-largest state bank, and the country is set to deliver a
HuaxiaBank 8.2 13.1 18.0 21.6% slew of equity from its lenders.
SDB 2.0 6.4 10.9 8.1% Yet while the volumes are large, nobody knows exactly in what size,
Total 50.0 247.4 521.3 4.0% shape or time frame they will arrive. And that is a big concern for the large
fund managers and sovereign wealth funds on which such issues will
SOURCE: UBS
depend.
32 DEC2009/JAN2010 ASIAMONEY
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