China's fifth-largest lender, Bank of Communications Co Ltd, will raise $8.9 billion to meet tighter capital requirements by placing shares with existing shareholders such as HSBC and the country's finance ministry. China is set to see a flurry of fund-raising this year, with state-run China Securities Journal saying in December that publicly traded banks were expected to raise more than 100 billion yuan in share offerings.
Besides HSBC and the Finance Ministry, the country's national pension fund as well as tobacco companies Shanghai Haiyan and Yunnan Hongta will also subscribe to the rights offer. Under the 56.6 billion yuan private placement, new Shanghai-listed shares will be priced at 4.55 yuan and Hong Kong-listed shares at HK$5.63. "A private placement is probably ideal under the current circumstances," said Alex Lee, an analyst at DBS Vickers in Hong Kong.
"These are likely to be long-term shareholders, and that removes the likelihood of selling pressure you may get if you have a general rights issue to a more fragmented general audience," he said. The new cash will mean BoCom, which has the lowest capital adequacy ratio of the five largest banks in China, will not pursue any more fundraising in the next 3-4 years, bank executives said in a call with analysts. HSBC said it will pay about HK$13.2 billion for about 2.4 billion new shares from its own cash, bringing its shareholding to no less than its current 19.03 percent.
The fundraising will lift BoCom's core tier 1 capital ratio to over 10 percent from 9.24 percent core capital ratio now. Its tier 1 capital ratio will climb to over 13 percent, executives said. That compares with 10.57 percent for larger rival China Construction Bank and 10.03 percent for Industrial and Commercial Bank of China.