Banking

Minsheng in $3b offering aimed at China Life, others

(Agencies)
Updated: 2011-01-07 16:59

HONG KONG/BEIJING - China Minsheng Banking Corp Ltd plans to raise about $3 billion in a Shanghai share placement to replenish capital, targeting major existing shareholders such as China Life, sources said.

China's seventh-largest lender will issue 20 billion yuan in new shares through a private placement to about six to seven investors, including shareholders China Life, the country's biggest life insurer, and China Fanhai Holdings, two sources with direct knowledge of the information said.

They declined to be named before the actual announcement, expected later on Friday.

"This is something the market has already expected since Minsheng's capital adequacy ratio is lower than its peers," said Ivan Li, an analyst at Kim Eng Securities in Hong Kong.

Minsheng's Core Tier 1 capital ratio, a key measure of financial strength, was 8.1 percent in 2010, compared with an average of 9.9 percent for other listed Chinese banks, according to Goldman Sachs estimates.

The Hong Kong- and Shanghai-listed shares of Minsheng were suspended from trade on Friday, pending the announcement of a proposed non-public issuance and placement of new A-shares, the bank said in a statement late on Thursday.

Minsheng officials declined to comment further on the reason for the suspension.

Analysts said the bank's plans for a share placement solely in the Shanghai stock market is likely to trigger concerns about earnings dilution among holders of Minsheng's A-shares, which are already trading at a 10 percent discount to the Hong Kong-listed H-shares. Minsheng's H-shares closed at HK$6.59 ($0.85) on Thursday before the suspension, higher than the 5.03 yuan ($0.76) recorded on the Shanghai bourse.

The latest fundraising effort comes after Minsheng said in December that the China Banking Regulatory Commission had approved a 10 billion yuan subordinated bond issue to shore up its capital.

Aggresive expansion

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China Minsheng has been aggressively expanding its loan book to compete against rivals such as ICBC and Bank of China, depleting its capital as it focused on small-to-medium enterprises.

"Minsheng's loan-to-deposit ratio and margins are relatively high, so it will benefit from interest rate rises," Li said.

The potential implementation of stricter capital requirements by China's bank regulator also pushed Minsheng to raise its capital earlier than expected, Li said.

Tougher capital rules may be required for China's biggest lenders that are strategically important, the head of the banking regulator was quoted by the official China Securities Journal as saying late last year.

Chinese lenders tapped investors for tens of billions of dollars last year to replenish their capital base following aggressive lending in 2009 and early 2010. Because of this, most banks have said they would not be required to raise fresh capital for the next two to three years.

Industrial and Commercial Bank of China was the last of China's "Big Four" state lenders to tap the market through a rights issue for 45 billion yuan ($6.8 billion) last November.