Ready to offer
Bank in need of core capital after rapid expansion of its loan book
China Merchants Bank wins approval for its $5.7 billion share sale in Hong Kong, which may be the world’s second-largest offering this year.
China Merchants Bank Co Ltd has won regulatory approval for an H-share rights issuance, lifting the barrier for a 35 billion yuan ($5.72 billion) fundraising plan to replenish much-needed core capital. The nation’s sixth- biggest lender said in a statement on Thursday that the China Securities Regulatory Commission has given the green light for its plan to issue 680 million shares in Hong Kong. Last month, it was given approval to sell 3.07 billion A-shares in Shanghai.
The approval marks an end to the Shenzhen-based bank’s long fundraising journey. It first broached the idea of raising 35 billion yuan in July 2011 but didn’t clear all the regulatory barriers until Thursday.
The bank said on Friday its first-half net profit rose 12 percent from a year earlier, driven by growth in net interest income and higher fees.
Its net profit for the first six months of the year ending June 30 totaled 26.27 billion yuan, up from 23.4 billion yuan a year earlier.
The result was higher than the average 25.94 billion yuan net profit forecast of four analysts polled earlier by Thomson One Analytics.
The bank is hungry for capital on the back of rapid loan-book expansion to 2.09 trillion yuan at the end of the second quarter, an increase of 10.1 percent from the end of last year.
Earlier this year, Chinese banking regulators tightened capital rules and made it harder for banks to borrow short-term funds, which further whetted China Merchants Bank’s appetite for funding.
The bank has failed to meet the 8.5 percent core capital adequacy ratio requirement for three consecutive years ending 2012. The bank managed to raise the level to 8.6 percent at the end of March this year, but it dipped again to 8 percent at the end of June.
The capital adequacy ratio is a ratio of a bank’s capital to its risk. It’s also widely used by regulators worldwide to contain risks in the banking system.
Analysts expect the rights issuance to raise the ratio to around 10 percent, which will give the lender more room to extend loans.
Chinese regulators require the price of rights issuances to be not lower than a company’s net asset value per share. China Merchants Bank’s net asset per share stands at 9.29 yuan (HK$11.77). Its shares traded at HK$14.48 yuan at the close of trading on Friday in Hong Kong.
That means China Merchants Bank cannot offer big discounts on the rights issue, which might hit investor enthusiasm.
China Merchants Bank will kick off the mainland banks’ earnings season.
Its net interest income rose 8.7 percent year- on- year to 47.44 billion yuan in the first half of the year, while net fee and commission income soared 46 percent to 14.16 billion yuan year-on-year.
Its net interest margin, a primary measure of a bank’s profitability from lending, dropped to 2.72 percent from 2.96 percent at the end of June 2012, as a result of rising interest costs.
China Merchants Bank also reported a 0.71 percent nonperforming loan ratio as of June 30, up from 0.61 percent at the end of 2012.