China’s AgBank to raise up to US$15.8bil via private placement

BEIJING: Agricultural Bank of China (AgBank), China’s third-largest bank, said it would raise as much as 100 billion yuan (US$15.81bil) in the biggest A-share private placement by a listed Chinese commercial bank.

The bank would use the money to replenish its common equity tier-1 capital and boost capital adequacy of the bank, AgBank said in a securities filing.

The fundraising comes as China’s large state banks step up efforts to speed up writeoffs and boost bad loan buffers as part of a nationwide campaign to de-risk and de-leverage the commercial banking industry, where non-performing loans are at 12-year highs.

China’s financial regulators have come up with rules to broaden banks’ capital tools and relax loan provisioning requirements to give banks greater scope to sell-off bad loans and move off-the-balance sheet business on to their loan books.

The China Banking Regulatory Commission (CBRC) has cut the provision coverage ratio for commercial banks to 120%-150% from 150%, a move that would give banks more capital so they could lend more to support economic activity, Reuters reported last week citing sources.

The CBRC is also amending rules for commercial banks to issue perpetual bonds, convertible capital instruments, and other innovative loss-absorbing debt instruments to replenish their capital, it said yesterday.

The CBRC requires systemically important banks such as AgBank to have a minimum core tier-1 ratio capital adequacy ratio of 8.5% by the end of 2018 and a minimum tier-1 level of 9.5%.

Banks are responding to the tighter regulation by reviewing their capital planning and implementing measures, including access to capital markets, said Nicholas Zhu, a senior analyst with Moody’s Investors Service.

UBS analysts estimated in January that Chinese banks had already raised 861 billion yuan in new capital between 2014 and 2017 – most via private placements by unlisted banks.

In October, AgBank issued 40 billion yuan worth of tier-2 capital bonds, with coupon rate of 4.45%.