Bank of China, the country's largest foreign exchange bank, said yesterday it would issue up to 12 billion yuan (US$1.45 billion) in subordinated debt on Friday.

The bank plans to issue 8 billion yuan (US$963 million) in 10-year fixed-coupon bonds. But it reserved the option to expand that to 12 billion yuan (US$1.45 billion), depending on investor demand.

This would be the second sale of this type of debt by the bank to replenish its capital base ahead of a planned initial public offering.

The bank issued 14.07 billion yuan (US$1.7 billion) in subordinated bonds in the first sale of such bonds in July. The bonds rank after other bank liabilities in terms of claims on bank assets.

After issuing the two groups of bond, the bank's capital adequacy level would reach about 9 per cent, according to bank spokesman Wang Zhaowen.

In order to increase the bank's capital strength, optimize the capital structure and diversify ownership, the bank would also usher in foreign company investors as its equity owners.

"We have made a major progress in picking up strategic investors. We have set our targets," said Wang, who declined to elaborate.

"The final announcement should be made before the end of this year," he said.

The bank, which received a US$22.5 billion cash injection from the government in late December, was chosen by the central government as a pilot project to turn it into a joint stock bank.

In August, the bank reorganized itself into a joint stock company, following the establishment of Bank of China Limited.

The joint stock company, which has registered capital of 186.39 billion yuan (US$22.5 billion), took control of all of Bank of China's assets, debts, employees and business.

Central Huijin Investment Co Ltd holds 100 per cent of company's shares on behalf of the Chinese Government.

Bank President Li Lihui said earlier that Bank of China aimed to list shares in the second half of next year.

"We will be listed at a proper time next year," he said. "The earliest time for this would be the second half of next year."

However, Li said improving the bank's financial strength should be the primary aim of the bank's reforms, rather than the initial public offering.

The bank's bad asset ratio fell to 5.16 per cent by the end of last month, down from 5.46 per cent at the end of June. The ratio stood at 16.3 per cent at the start of the year.

The bank's capital adequacy ratio, a measure of how much capital it has in relation to assets, rose to 8.39 per cent at the end of last month from 7.9 per cent at the end of June, Wang said.

Operating profits in the first nine months reached 48 billion yuan (US$5.8 billion), up 23.7 per cent year-on-year.

With an aim to increase its profits, the bank yesterday began to issue its first dual-currency credit card.

Niu Li, a senior economist at the State Information Centre, said Chinese commercial banks would have to sharpen their competitive edge before foreign banks obtain unrestricted access to the Chinese market at the end of 2006.

The banks would have to lower their non-performing loans, ditch historical financial burdens and raise their capital adequacy levels to international standards, he said.

China Construction Bank, another State-owned bank chosen by the central government as a pilot project, said earlier its non-performing assets ratio dropped 5.69 percentage points from the first quarter of this year to reach 3.08 per cent at the end of June.

The bank established a joint stock bank last month, following the splitting of the institution into two parts.

It plans to take a lead among the four largest State-owned banks to get listed.

(China Daily October 19, 2004)