Bank of China (BOC), the country's largest foreign exchange lender, is likely to raise a maximum 50 billion yuan from the equity market this year to shore up its capital strength, a source close to the bank said.
"A comprehensive fundraising plan may come out together with the bank's 2009 annual results," the source told China Daily on condition of anonymity due to the sensitive nature of the matter.
The nation's third largest lender by market value said in a notice to the Shanghai Stock Exchange that it planned to release its annual results on March 24.
The bank is yet to decide whether it will be a new share issue or a rights offering for existing shareholders, the source said.
"Besides offering shares, the bank is also weighing up whether to raise capital by issuing convertible bonds," the source said, adding the specific amount was still to be determined.
A Reuters report citing investment bank sources said BOC plans to raise some 20 billion yuan through either a direct issue or a convertible bond as the first step of its comprehensive capital replenishment plan.
Market discussions on Chinese banks' massive fundraising drive have heated up since November last year when the reported 100 billion yuan fundraising plan by BOC emerged to upset the mainland stock market.
The maximum 50 billion yuan to be raised through a share offering is well below the initially rumored 100 billion yuan capital-raising plan. The bank may have thought the larger sum was so big that it could damage the market, analysts said.
"The bank urgently needs to fix its capital-raising plan, since at least another half a year is needed before the plan can be approved by the regulators," She Minhua, a banking analyst with Haitong Securities, said.
He believed 50 billion yuan might be an initial figure needed by the bank, as the lender should take its business expansion in the next three to four years into consideration.
After a historic lending spree of nearly 10 trillion yuan in new loans last year, Chinese banks have showed signs of capital strain. They are expected to usher in a new wave of fundraising this year.
Amid the fastest credit expansion pace of more than 30 percent among Chinese lenders, BOC is watched closely by the market, which was already very sensitive to any fundraising move after a glut of new listings and share offerings.
BOC's capital adequacy ratio dropped to 11.63 percent as of the end of the third quarter last year, against the regulatory requirement of 11 percent for major State-owned banks, while its core capital adequacy ratio stood at 9.37 percent at the same time.
Other banks, including Bank of Communications and Shanghai Pudong Development Bank, are believed to be in need of capital in the short term. The Chinese banks' fundraising drive, together with the uncertainties brought by the launch of margin-trading and stock index futures, may pose a serious test to the Chinese stock market in 2010.
