SHENZHEN Development Bank Co (stock code: 000001) will sell bonds for the first time, raising as much as 16 billion yuan (US$2.1 billion) and resolving a capital shortage that has hampered its ability to expand.
The bank, controlled by buyout firm TPG Inc, will sell eight billion yuan of subordinated bonds maturing in five to 15 years, and a further eight billion yuan of hybrid bonds with maturity of at least 15 years, it said. The debt will be sold within 18 months upon shareholder approval, said Bloomberg News.
Shenzhen Development needs funds to win regulatory approval for opening more branches in a nation where lending grew an average 15 percent annually during the past five years. Shareholders on June 8 approved the bank's revised plan to make all its stock tradable, lifting a financing hurdle.
"Bond sales have become an important funding source for banks that are short of capital," said Wu Yonggang, a Shanghai-based bank analyst at Guotai Junan Securities Co. "The current interest rate environment is still favorable."
The planned sale would allow Shenzhen Development to increase its capital adequacy ratio, a key measure of financial strength, to the eight percent minimum required by China's banking regulator, said board secretary Xu Jin. The ratio stood at 3.8 percent as of March 31.
The regulator is encouraging lenders to sell bonds and shares to boost their capital and prepare for more competition from overseas rivals such as Citigroup Inc. Foreign banks started taking deposits from local residents in April.
A capital shortage would cut into Shenzhen Development's earnings by limiting loan growth and reducing interest income. China Minsheng Banking Corp, the nation's first privately owned bank, said yesterday it plans to sell 20 billion yuan of regular three and five-year bonds to finance loan growth.
Minsheng, founded a decade ago by 59 private corporate investors, expects loans to expand 19 percent to 532 billion yuan this year.
Subordinated bonds give their holders a stronger claim over a company's assets in the event of a bankruptcy than do hybrid debt. A hybrid bond allows the seller to delay interest payments when its capital adequacy ratio falls below four percent or if it's unable to pay other bondholders with priority claims.