China Minsheng Banking Corp., the nation's only non-state lender, plans to raise as much as 23.8 billion yuan ($3.1 billion) selling shares to select investors to strengthen capital as loans soar.
Minsheng will sell 2 billion shares to no more than 10 existing and new institutional investors next week, it said in a statement. The shares closed at 11.92 yuan yesterday. It has trimmed an initial plan to sell 3.5 billion shares as the stock surged since the sale was first announced in July.
Chinese banks are taking advantage of soaring stock prices to raise money, allowing them to extend a lending boom that helped fuel economic growth of 10.7 percent last year. Minsheng, whose loans quintupled between 2001 and 2005, is seeking to raise its capital adequacy ratio to comply with a regulatory minimum and avoid having to slow lending.
Any single investor can order a maximum of 600 million shares and those who commit to holding the stock for a longer period will have priority in purchasing shares. Under Chinese rules, buyers will be required to hold the shares for one to three years.
Minsheng's capital adequacy ratio, a key measure of financial strength, fell to 7.46 percent at June 30 from 8.26 percent six months earlier. A bank which slips below the 8 percent regulatory minimum can be forced by the central bank to restrict lending.
The company estimates it needs to raise at least 10 billion yuan to bring its capital adequacy ratio above that threshold, Liu Minwen, director of Minsheng Bank's corporate finance department said.
Temasek, a $65 billion Singapore government fund, is interested in raising its stake in Minsheng by buying some of the new shares, Tow Heng Tan, a senior managing director in Temasek's strategic development department, said last year.
Sichuan New Hope Investment Co., the largest shareholder in Minsheng Bank, said in a statement today it is "actively'' seeking to buy into the placement. Minsheng, founded by 59 private corporate investors who each own less than 10 percent, has carved out a niche lending to small and medium-sized private companies. The 10-year-old bank has had fewer problems with bad loans and fraud than rivals.
The bank on Jan. 21 said 2006 profit increased about 40 percent, citing preliminary figures. Minsheng had 2.7 billion yuan in net income in 2005.
Chinese banks including Minsheng and Industrial Bank Co. are raising funds to comply with a government requirement to bolster their finances and to help fend off overseas competitors, which in December were allowed to begin taking yuan deposits. Six banks have sold a combined $51 billion of shares in initial public offerings since June 2005.
The influx of money may put lenders on a collision course with the central bank, which wants them to rein in lending to industries such as steel and cement to help cool an investment boom that threatens to leave China with idle factories.
The People's Bank of China in early 2006 set a target of no more than 2.5 trillion yuan in new lending for the full year. That target was reached in August, and banks ended up extending 3.18 billion of yuan of new loans in 2006, central bank data shows. It hasn't set a new quota for 2007.
Money from a record trade surplus has poured into China's stock market, helping drive a more than doubling of share prices in 2006 and fueling concern about a bubble. Chinese stocks last week had their biggest decline in five years after a lawmaker said prices have climbed to unsustainable levels.
Banks have been among the hardest hit, with the industry accounting for three of the 10 worst-performing stocks on the Shanghai and Shenzhen 300 Index this year.
Mingsheng Bank trades at 2.57 times its forecast book value for 2007, according to UBS AG estimates. For China Merchants Bank Co., the ratio is 3.72. HSBC Holdings Plc, the largest European bank by market value, has a price-to-book ratio of 1.95 and Citigroup Inc., the world's largest financial-services company, trades ad 1.96 times estimated book value.