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ABC set to issue bonds to boost CAR

ABC set to issue bonds to boost CAR

Write: Shakira [2011-05-31]

Agricultural Bank of China Ltd (ABC), the country's third-biggest lender by assets, will sell 40 billion yuan ($6.17 billion) of subordinated bonds from June 2 to 7, according to a statement released on Monday on the website of China Central Depository & Clearing Co, Ltd.

To boost its capital adequacy, ABC will sell 8 billion yuan of 10-year bonds and 32 billion yuan of 15-year bonds. It also has an option to sell an additional 10 billion yuan of bonds, according to the statement.

Dow Jones Newswires reported on May 23 that the lender's capital adequacy ratio (CAR) will rise to 12.5 percent if it sells the bonds at the maximal 50 billion yuan, citing a term sheet.

ABC reported a CAR of 11.4 percent at the end of the first quarter, 0.2 percentage points lower than the level at the end of December and 0.1 percentage points lower than the China Banking Regulatory Commission's (CBRC) requirement for major banks.

Zhan Dongsheng, an ABC spokesman, previously told China Daily that the bank's lower-than-required CAR at the end of the first quarter was mainly due to new calculation methods applied by the CBRC to counter the risks of loans made through local government financing vehicles.

"After that (the subordinated bonds selling), our CAR will surely meet with the requirement of 11.5 percent by the end of the second quarter," he said.

The bank is also planning to sell no more than 10 billion yuan-denominated five-year bonds in Hong Kong to make yuan lendings and supplement operational capital, ABC said in a statement in March.

ABC's stock price gained 2.16 percent to 2.84 yuan per share in Shanghai on Monday, and it rose by 1.08 percent on the Hong Kong Stock Exchange to HK$4.67.

The CBRC announced earlier this month that new rules setting tougher criteria for lenders' capital adequacy will take effect at the beginning of 2012. For banks that are not systemically important, the requirement stands at 10.5 percent.

On Thursday, it required six major banks, including ABC, to submit the results of their CAR calculations based on new standards highlighting the risks related to government-backed loans and the property market before June 3.

Facing higher CAR requirements, tightening controls over liquidity and limited equity financing, several Chinese banks have announced plans to issue subordinated debt on the interbank bond market this year.

Bank of China Ltd sold 32 billion yuan of 15-year subordinated bonds in the national interbank bond market on May 17, while Bank of Shanghai Ltd issued 5 billion yuan of bonds on May 20 to supplement capital, and China Minsheng Banking Corp Ltd sold 10 billion yuan of bonds in March.

Industrial and Commercial Bank of China Ltd, the world's largest lender by market value, plans to sell 25 billion yuan of subordinated bonds sometime this year, while China Construction Bank Corp said it doesn't rule out the possibility of soaking up capital by selling bonds.

Shanghai Pudong Development Bank Co announced plans to sell no more than 50 billion yuan of subordinated bonds from 2011 to 2013. Bank of Nanjing Co, Ltd and China Guangfa Bank Co, Ltd are also gearing up for this kind of bond sales to raise funds.