Pudong Development Bank plans 6b yuan bond sale
Updated: 2008-03-14 14:48
Shanghai Pudong Development Bank Co, partly owned by Citigroup Inc, plans to raise about 6 billion yuan ($846 million) selling hybrid bonds this year after loan growth drained capital.
The sale needs regulatory approval, the Shanghai-based company said today in a document submitted in preparation for a shareholder meeting, without giving further details. Pudong Bank dropped 3.2 percent to 32.70 yuan as of 11:14 a.m. in Shanghai, taking this year's loss to 39 percent.
Profits surged at China's banks last year, as the fastest economic growth in 13 years spurred demand for loans. Lending growth and the highest reserve ratio in more than 20 years have cut into banks' capital and liquidity.
"While loan expansion powers the engine of profit, it uses up capital more quickly than any other financial product," said Liu Xiaochang, an analyst at Huatai Securities Co in Nanjing. "Selling bonds is a more viable option now as the market doesn't seem to have appetite for any more share offerings."
Pudong Bank expanded lending by 20 percent, driving a 64 percent jump in profit. The growth pushed the bank's capital adequacy ratio to 9.15 percent, above the 8 percent minimum required by the regulator. Pudong needs more capital after forecasting loan growth of 14 percent for this year.
The company said last month it plans to sell as many as 800 million shares to the public, seeking to raise 26 billion yuan based on the current price. After completing the bond and share sales, the bank's capital ratio will increase to at least 12 percent by the end of 2008, it said today.
Chinese banks are resorting to debt sales after the nation's benchmark CSI 300 Index tumbled 29 percent from its October 16 peak. News of Pudong Bank's share sale triggered a 27 percent drop in the lender's market value since February 20 on concern it would dilute per-share earnings.
Shenzhen Development Bank Co won approval yesterday to sell as much as 7 billion yuan of subordinated bonds, as part of its plan to meet the 8 percent minimum capital requirement.
Subordinated bonds give their holders a stronger claim over a company's assets in the event of a bankruptcy than do hybrid debt. A hybrid bond allows the seller to delay interest payments when its capital adequacy ratio falls below 4 percent or if it's unable to pay other bondholders with priority claims.