SHANGHAI - Shanghai Pudong Development Bank, part-owned by Citigroup Inc, will raise about 40 billion yuan ($5.9 billion) by selling a roughly 20 percent strategic stake to China Mobile, two brokerages said.
Shares in the mid-sized bank jumped 5.5 percent to 20.74 yuan on Thursday before trading was suspended due to what Pudong Bank said was the pending announcement of plans to introduce strategic investors.
The shares remained suspended on Friday and Pudong Bank declined comment. Pudong Bank was the most actively traded stock in Shanghai on Thursday in terms of value with trading worth nearly 4 billion yuan.
China Mobile Ltd's Hong Kong-based spokeswoman Lei Yu declined comment on the reports.
Pudong Bank is joining other Chinese lenders, including Bank of Communications (BoCom) and China Merchants Bank, in a rush to raise cash to replenish capital bases that were weakened by last year's lending spree and in order to meet tighter capital rules.
In a report on Friday, Guotai Junan Securities said Pudong Bank would sell about 2.2 billion shares to China Mobile at no less than 17.82 yuan each.
Guotai's report did not specify whether the stake was being sold to Hong Kong-listed China Mobile or to its parent company.
It is common for Chinese non-financial companies to invest in banks.
The strategic investment would help boost Pudong Bank's profitability and is beneficial to the lender, Guotai Junan analyst Wu Yonggang said in the report dated February 25. Wu expects the shares to rise once trading resumes.
Wu also estimated the fundraising would increase Pudong Bank's core capital adequacy ratio by about four percentage points to above 10 percent, while boosting its capital adequacy ratio to nearly 14 percent.
Brokerage China International Capital Corp (CICC) also said in an email to clients on Thursday that China Mobile would buy up to a 20 percent strategic stake in Pudong Bank for as much as 40 billion yuan.
Chinese listed companies sometimes brief analysts about major developments ahead of official announcements, but after share trading suspensions.
Shares in Pudong Bank, 3.4 percent owned by Citigroup, have underperformed recently as investors worry the lender's expansion could be restricted by a shortage of capital, Guotai Junan said.
The lender's capital adequacy ratio, a key measure of banks' ability to absorb potential losses, stood at 10.16 percent as of September 30 of last year, below the 12 percent minimum required for small- and mid-sized lenders.
Chinese banks lent nearly 10 trillion yuan last year to support government stimulus, weakening their balance sheets.
In the latest sign banks could face even greater demands to raise funds, the 21st Century Business Herald newspaper said on Friday that Beijing may ask big banks to increase their capital adequacy ratio to 11.5 percent this year from an 11 percent average at present.
Introducing China Mobile as a strategic investor would ease market concern of an oversupply of shares due to banks' fundraising plans, and would support Pudong Bank's expansion over the next three years, CICC said in its report.
Several banks have announced fundraising plans in recent months.
This week, BoCom, China's fifth-biggest lender by assets, said it planned to raise as much as $6.1 billion via a rights issue in Shanghai and Hong Kong to bolster capital.
($1 = 6.83 yuan)
(Editing by Jacqueline Wong and Anshuman Daga)