23 Nov 2009
Nov. 23 (Bloomberg) -- Industrial Bank Co. plans to raise 18 billion yuan ($2.6 billion) in 2010 in the third-largest share sale announced by a Chinese lender this year to ensure it has enough capital to meet increasing loan demand.The Chinese lender, which is backed by a HSBC Holdings Plc unit, will offer 2.5 shares for every 10 held, according to a statement to the Shanghai exchange today. The sale needs approval from the nation's banking and securities regulators.
Industrial Bank's planned offer will raise funds after its capital ratio fell below a target set by the banking watchdog. Rival China Minsheng Banking Corp. got $3.8 billion last week from a share sale in Hong Kong, and China Merchants Bank Co. aims to raise 22 billion yuan with a rights offer by year end.
"Almost all medium-sized banks are under pressure to raise capital if they want to meet higher regulatory requirements without sacrificing loan growth," said Cheng Jiaoyi, a Shanghai-based analyst at Qilu Securities Co. "Without this fund-raising plan, Industrial Bank's loan growth will fall below industry's average next year." Cheng rates the stock "buy."
Industrial Bank shares rose 2.1 percent to 41 yuan in Shanghai as of 10:28 a.m. The stock has surged 181 percent this year, beating the 83 percent gain in the benchmark Shanghai Composite Index.
Expanding Loans
Fuzhou-based Industrial Bank plans to expand loans by 15 to 24 percent from 2009 to 2012, the bank said today. It aims to boost the capital adequacy ratio to 12 percent from 9.21 percent as of June 30, according to today's statement. The lender targets a tier-1 ratio, which measure the bank's ability to absorb losses, of 8 percent from 7.41 percent.
The China Banking Regulatory Commission said in September it plans to tighten capital requirements for banks by capping cross holdings of subordinated bonds and has forced lenders whose capital adequacy ratios have fallen close to 8 percent to curb expansion.
The nation's 11 largest publicly-traded banks may need to raise about 300 billion yuan by selling shares and bonds to ensure they have adequate capital for credit growth, a BNP Paribas analyst wrote in a report on Nov. 20.
Industrial Bank's capital adequacy ratio had by June fallen to the fifth-lowest among these lenders, according to the separate semi-annual reports. Those with a lower capital ratio have announced or completed fund-raising plans.
Credit Boom
Industrial Bank plans to boost its supplementary capital by selling hybrid or convertible bonds after the rights offer, it said today.
China's government has encouraged a $1.3 trillion credit boom this year to aid stimulus plans, propelling the economy in the last quarter to its fastest pace of growth in a year.
Hang Seng Bank Ltd., the largest Hong Kong-based lender by market value, owns 12.8 percent of Industrial Bank. HSBC controls 62 percent of Hang Seng.
"As its strategic partner, Hang Seng Bank supports Industrial Bank's long-term development," the Hong Kong lender said in an e-mailed statement today. "Hang Seng Bank will give this plan serious consideration after obtaining details."
