CCB bond plan to replenish capital base
By Xu Dashan (China Daily)
Updated: 2004-07-06 08:55

China Construction Bank (CCB) says it plans to issue up to 40 billion yuan (US$4.8 billion) in subordinated debt to replenish its capital base ahead of a planned initial public offering.

The bank said it would start issuing the bonds from the middle of this month and finish the issuance before the end of the first half of next year, according to yesterday's China Securities Journal.

But a bank spokesman said the plan (to issue subordinated debt) is still in the process of being approved, declining to give further details.

The State Council agreed last month that China Construction Bank and Bank of China can issue such debt. The bonds rank after other bank liabilities in terms of claims on bank assets.

Dong Chen, a senior analyst with China Securities, said the banks need to issue subordinated debts for their future expansion.

China's State-owned banks will have to sharpen their competitive edge before foreign banks can enter the Chinese market without restrictions before 2006, he said.

"They will have to lower the rate of non-performing loans (NPLs), 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.

China Construction Bank would begin issuing a first group of 10 billion yuan (US$1.2 billion) in bonds in the middle of this month, China Securities Journal said.

"Half of that 10 billion yuan (US$1.2 billion) would comprise bonds based on a fixed coupon, while the other half would carry a floating rate," the newspaper said.

After the issue, the bank's capital adequacy would stand at 8 per cent or higher, it said.

China Construction 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.

Early last month, the bank said it would be split into two in September and China Construction Bank Corporation would be ready for a stock listing.

The bank also said it would usher in company investors to hold stakes in its initial public offering.

President Zhang Enzhao said an introduction of foreign companies as strategic investors is beneficial for increasing capital strength, optimizing capital structure and diversifying the ownership of the bank.

More importantly, foreign company investors could bring in advanced management experiences and improve the bank's corporate governance, he said.

"Our goal is to establish a modern share-holding commercial bank that will make us a competitive heavyweight in the global financial market," he said.

Zhang said the time and venue of the bank's planned listing has yet to be decided.

The stock listing would be "confirmed when internal and external conditions are ripe," he said.

During the first quarter, the bank earned 15.97 billion yuan (US$1.9 billion) in operating profits, an increase of 32.4 per cent from a year ago.

By the end of March, the bank's non-performing loan ratio, by international standards, was 8.77 per cent, a drop of 0.35 percentage point compared with the beginning of the year.

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