ICBC <1398.HK>, the world's most valuable lender, may raise up to $6.6 billion in new funding, sources said, joining Agricultural Bank of China , which priced its IPO to be the world's largest, in a rush to raise billions of dollars.
Big state-owned Chinese banks including Bank of China <3988.HK> are seeking to replenish funds depleted by last year's record government-directed lending spree and to meet higher capital levels demanded by regulators.
The massive fundraisings, though well-flagged, have weighed on China's stock markets, contributing to their being among the worst performers in the world this year.
But with AgBank's IPO pricing late on Tuesday providing no nasty surprises and the government set to stump up the bulk of the new funds by subscribing to the other banks' planned rights issues, the stock market may be relieved and the remaining banks' fundraising plans may be smooth, analysts said.
The government was pushing for banks to lend to keep GDP growing in 2009, so it seems fair to me that it now has to recapitalize the banks with all this fundraising, said Ivan Li, an analyst at Kim Eng Securities in Hong Kong.
In the medium term, the government may choose to allow the market to play a bigger picture, but until that happens, it's going to be the government paying the bill.
ICBC MODIFIES PLANS
Industrial and Commercial Bank of China (ICBC) <601398.SS> would raise the money through rights offers to shareholders of its Hong Kong-listed H-shares, as well as its Shanghai-listed A-shares, sources said on Wednesday.
That's a change from ICBC's earlier plan, which, according to sources, had a few months ago mandated banks to arrange a $7-$10 billion Hong Kong stock offering.
The bank will propose that its shareholders get the right to buy between 0.3 to 0.5 shares per 10 shares held, the Hong Kong-based, Chinese-language Ming Pao reported on Wednesday.
Based on its current count of 334 billion shares, that ratio would translate to 10 billion to 16.7 billion new shares, according to Reuters calculation.
One source said the rights offers still needed approvals from the ICBC board, its shareholders and the regulator, so the timing of the offering could be by the end of 2010.
Officials at ICBC were not immediately available for comment.
ICBC's Shanghai- and Hong Kong-listed shares were down 0.24 percent and 1.6 percent, respectively, both worse than broader market declines.
The move to raise capital through rights issues, as opposed to new share placements, mirrors similar moves by other banks.
We can see that China's central government still has great confidence in state-owned banks, and thus is willing to inject money in their refinancing plans to avoid any possible dilution, said Wilson Li, an analyst with Guotai Junan.
ICBC also plans to issue 25 billion yuan in convertible bonds by September, sources close to that deal told Reuters in May.
AGBANK PRICING, RATIOS IN LINE
The ICBC plan would come as AgBank nears completion of a dual listing in Hong Kong and Shanghai worth up to $22 billion that priced late on Tuesday near the top of its range for the Shanghai portion and at the middle for its Hong Kong portion.
The pricing was largely in line with expectations, giving AgBank a price to book ratio of 1.68. That compares with ratios of about 2 for ICBC and China Construction Bank <0939.HK> <601939.SS>, China's top two lenders, and a sector mean of about 1.6 for Hong Kong-listed banks.
AgBank's pricing bodes well for other bank fund raising plans, said He Sheng, head of research at Western Securities Co.
The IPO price is market-based, and quite reasonable, given the bank's growth prospects, he said. Relatively good demand shows that anything can sell well if priced properly.
The ICBC and AgBank fund-raising follow close on the heels of similar plans announced by Bank of China <601988.SS>, China's No.4 lender, late last week.
Bank of China said on Friday it plans to raise up to 60 billion yuan through a rights offer in Shanghai and Hong Kong.
(Additional reporting by Clare Jim, Fiona Lau and Alison Leung in Hong Kong, Samuel Shen in Shanghai and Michael Wei and Xie Heng in Beijing; Editing by Jonathan Hopfner and Muralikumar Anantharaman)