Bank to further replenish capital base
By Xu Dashan (China Daily)
Updated: 2004-09-08 08:41

China Construction Bank, one of the country's four largest State-owned banks, said yesterday it plans to issue a second group of subordinated debt shortly to replenish its capital base ahead of a planned initial public offering.

The bank did not say how many bonds it plans to issue this time.

It issued 15 billion yuan (US$1.8 billion) similar bonds in a first sale in July. The amount sold was 50 per cent more than earlier planned.

A reliable source said the bank would issue a similar amount of bonds this time.

"The bank is selecting a group of underwriters to help sell the bonds," the source said.

Industry experts say an issue of the subordinated debt is an effective measure for banks to increase their capital adequacy level.

China Construction Bank has been approved by the People's Bank of China and China Banking Regulatory Commission to issue no more than 40 billion yuan (US$4.8 billion) worth of such bonds. The bonds rank after other bank liabilities in terms of claims on bank assets.

After issuing all the bonds, the bank's capital adequacy level would reach more than 8 per cent.

With the aims of increasing the bank's capital strength, optimizing the capital structure and diversifying ownership, the bank also plans to usher in foreign company investors as equity owners.

The bank, which won a US$22.5 billion bail-out from the government in late December, was chosen by the central government as a pilot project to turn it into a joint stock bank.

Bank President Zhang Enzhao said earlier that his bank's goal is to establish a modern share-holding commercial bank that would make it a competitive heavyweight in the global financial market.

Dong Chen, a senior analyst with China Securities, said Chinese commercial banks, especially the four largest State-owned banks, would have to sharpen their competitive edge before foreign banks can enter the Chinese market without restrictions before the end of 2006.

"They will have to lower the rate of non-performing loans, get rid of historical financial burdens and raise their capital adequacy to international standards," he said.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 per cent, the minimum required by the Basel Capital Accord reached by international banking managers.

"This means China's commercial banks, especially the State-owned banks, will have to achieve the goal before they get listed," Dong said.

By the end of June, the non-performing asset rate of the China Construction Bank dropped 5.69 percentage points from the first quarter of this year to reach 3.08 per cent.

Governor Zhou Xiaochuan of the People's Bank of China said China Construction Bank would establish a share-holding company in September, following the splitting of the bank into two.

In June, China Construction Bank was approved by government departments to be split into a company group and a share-holding company.

China Construction Bank Corporation will continue to operate the bank's commercial banking business including its domestic and foreign currency deposits, loans, banking cards and clearance.

The business names, trademarks, Internet domain names and service call numbers of China Construction Bank and its branches will remain unchanged and will continue to be used by China Construction Bank Corporation.

China Construction Bank Group Inc is the shareholder of China Construction Bank Corporation and will not operate the commercial banking business.

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