Bank of China said its bid to raise up to $8.86 billion should give it sufficient capital for the next three years, seeking to ease investor concerns about finances at China's No 4 lender.
The bank said late on Friday it planned to raise up to 60 billion yuan ($8.86 billion) through a rights offer in Shanghai and Hong Kong, which would see shareholders get up to 1.1 rights shares for every 10 shares held. [BOC to raise up to $8.86b in rights offer]
In an investor call on Monday morning, the bank said it aimed to complete the rights offer by year end, and that it expected no further need for additional fundraising in the next three years, according to several analysts on the call.
The bank also said it expected its capital adequacy ratio to be stable at about 12 percent for the next three years after collecting new funds from the rights issue, analysts said.
A Bank of China spokeswoman could not immediately confirm details from the call.
Combined with a convertible bond issue that raised about $5.9 billion in Shanghai last month, the new rights issue could bring Bank of China's fundraising activities this year to nearly $15 billion.
Its fundraising is part of a broader rush by Chinese banks to replenish capital depleted by a 2009 lending spree and to meet a tighter capital adequacy ratio demanded by regulators.
Most of China's top banks, including the two largest, Industrial and Commercial Bank of China and China Construction Bank, have announced plans to tap capital markets, aiming to raise more than $70 billion combined to replenish their coffers.
Even with the convertible bonds and rights issue, Bank of China's capital adequacy ratio would still only reach about 12 percent, versus a government mandated minimum of 11.5 percent, according to some analysts.
"At present, Bank of China is the one that needs the money most badly," said Liu Yinghua, an analyst with Ping An Securities. "Other major banks will also likely do one more round of fundraising next year, if not this year."
Clashing with ABC
Bank of China's move caught many off guard in part because it comes just as Agricultural Bank of China, the nation's No 3 lender, is preparing to launch an IPO in Shanghai and Hong Kong, expected to raise $20 billion or more later this week. [Focus on ABC's IPO]
"Bank of China's fundraising plan caught me by surprise as they previously ruled out the possibility of additional sales of A-shares, and the market is apparently frightened," said Ye Yunyan, an analyst at Galaxy Securities.
Despite the close timing, analysts said the two fundraising plans were not likely to fall too close together, as Bank of China's plan still required shareholder approval and was likely to be at least a month before it could proceed.
The capital-raising rush also comes amid mounting talk that China could take steps to support its stock market, which is down 28 percent year to date, making it the world's second-worst performer after Greece.
One such step, which China has resorted to several times in the past, could be a freeze on new fundraising in Shanghai by locally listed companies.
The fundraising should also have less impact than its large numbers imply because many of the new shares would presumably be purchased by the bank's largest shareholder, Central Huijin Investment Co, a government entity that holds about 68 percent of the bank.
"If Huijin fully participates in the share placement, the amount that goes to the market will actually be much smaller than the targeted 60 billion yuan," said Victor Feng, an analyst at Everbright Securities.
"Nevertheless, in the immediate term, we think the fund-raising plan will have a negative impact on market sentiment and, hence, valuations of banking stocks."
Analysts predicted the placement was unlikely to come until September at the earliest, and could even take place in the fourth quarter.
In its Friday announcement, Bank of China did not specify prices for the rights offering. Analysts said that based on past experience with other Chinese banks, the rights should be priced at a discount of 30-40 percent to the bank's current share price.
