Search Keywords
Financial Times Wall Street Journal Economist
News Period From   To
News: 60885    Funds: $437    Pays: $524

Go Back to
News List
This News on
Daily Paywall
  Rated 16 | Views 165
Rate it | Share it 

Asia Markets
China's Banks Seize on New Debt Option
From the Wall Street Journal of Sun, 07 Dec 2014 22:45:56 EST
China's banks are raising record amounts of new capital as the economy slows and bad debts increase. The WSJ's Enda Curran speaks with Grace Wu from Fitch Ratings about the coming year.

HONG KONG—Even as they battle souring loans and weak share prices, China’s banks have managed to raise a record US$110 billion this year by tapping into investors’ desire for yield.

The fundraising has been dominated by the sale of bonds, including a preference-share option that was opened to banks this year. The amount raised is more than double last year’s US$43 billion, Dealogic figures show, and tops the record of US$82 billion raised in 2010, when one of China’s biggest banks, Agricultural Bank of China Ltd. , raised US$22 billion in what was then the world’s biggest IPO.

Banks have gone on the capital-raising spree to cope with both rising bad loans and Beijing’s push for them to hold more capital. China’s banks chalked up a 36% surge in bad loans year over year in September amid the country’s slowest economic growth in five years. At the same time, regulators have imposed a 2018 deadline for banks to adopt the tough new global capital rules required by Basel III, a global standard for bank strength.

China’s banks will continue to tap markets for funds next year, “to fund their growth and to meet regulatory requirements,” said Grace Wu, senior director of financial institutions at Fitch Ratings.

While a recent surprise rate cut by China’s central bank has buoyed the country’s long-embattled bank stocks, shares of many banks, although rising, continue to trade below the value of their assets, or below book, making equity fundraising a second-best option to the wide-open bond window.

Of the $110 billion raised, 98% has come in the form of debt, from both bonds sold in China and offshore. About 22% of the debt has been from preference shares, which Beijing began allowing in April.

Preference shares have features of bonds and equity, but investors see the product more as a fixed-income tool because it pays interest regularly.

Preference shares give no voting rights to investors and could become worthless in the event of a default. But they can be converted into equity and they carry high yields to reflect the risks, a boon at a time when global interest rates remain low. They are also counted toward Tier 1 capital, a key measure of a banks’ financial strength within the Basel III framework.

China’s banks, which are on a capital-raising spree, have raised a record $110 billion this year.
China’s banks, which are on a capital-raising spree, have raised a record $110 billion this year. Reuters/China Daily

China’s biggest lender by assets, Industrial & Commercial Bank of China Ltd. sold US$5.69 billion in preference shares to investors last week, becoming the fourth mainland lender to sell such instruments, according to Dealogic. The yield on the bond was 6%, according to people familiar with the matter, well above the five-year U.S. Treasury bond yield of 1.6%, eliciting almost US$28 billion in orders.

While stock-dividend yields at China’s big banks are generally high—at around 5% to 6%—buyers of preferred shares have the advantage of regular income without the volatility that besets the sector’s shares.

“Usually, institutional investors, such as pension funds and bond funds who have bond mandates, are interested in buying these preference shares,” said Dominique Jooris, head of credit capital markets for Asia, excluding Japan, at Goldman Sachs Group Inc.

Bank of China kicked off the sale of preference shares in October, selling $6.5 billion worth in an offshore issuance at a 6.75% yield. In November, it raised an additional US$5.2 billion in a domestic offering that yielded 6%.

Agricultural Bank of China raised 40 billion yuan (US$6.5 billion) in October from domestic preference shares yielding 6%.

In all, seven Chinese banks have announced plans to raise more than US$60 billion from preference shares.

The addition of the product to the arsenal of fundraising tools has come as a welcome relief at a time when the equity market, from IPOs to secondary share sales, has been closed off. China doesn’t allow banks to raise equity if they sell shares below their book value, while many recent listings, such one in March by Harbin Bank Co., are trading below their issue price.

“It seems highly unlikely at this point that we will see much common-equity [share sales] issuance by mainland banks,” said Mizuho Securities analyst Jim Antos.

China Guangfa Bank, in which Citigroup Inc. is a shareholder, and Bank of Shanghai, partly owned by HSBC Holdings PLC, picked banks to handle planned listings more than two years ago but have yet to begin the process of going public and are unlikely to do so in coming months, according to people familiar with the matter.

—Anjani Trivedi contributed to this article.

Write to Prudence Ho at

This article is provided by, which is published and distributed by Paolo Cirio Ltd., registered in England, number 8188080. Registered Office: Suite 36, 88-90 Hatton Garden, City of London, EC1 N8PG, United Kingdom. Paolo Cirio Ltd. alone is responsible and liable for information and services provided through Daily Paywall’s newspaper and website.

Earn Money
Offer Money
Buy Advertising
Buy Artwork Article

Similar Articles