Industrial and Commercial Bank of China (ICBC), the nation's biggest lender, sold 35 billion yuan (US$4.3 billion) of bonds on Friday, boosting capital in preparation for its initial share sale.

The bank sold 13 billion yuan (US$1.6 billion) of 10-year fixed-rate bonds on China's interbank market, and 13 billion yuan of 15-year fixed-rate bonds, said Liu Qian, an official overseeing the sale for arranger Agricultural Bank of China. It also sold 9 billion yuan (US$1.1 billion) of 10-year floating-rate bonds.

The sale of subordinated debt will further raise the lender's capital adequacy, a key measure of a bank's financial strength expressed as a ratio of capital to risk-weighted assets. ICBC lags behind Bank of China and China Construction Bank, the nation's second and third-biggest lenders, in a race to reorganize and sell shares.

"Selling bonds can improve the lender's finances and would make it more attractive to overseas strategic investors," said Liang Jing, Shanghai-based banking analyst at Guotai Junan Securities Co. "But the key really is to improve corporate governance and management."

The lender's capital adequacy ratio jumped to 9.12 percent as of June 30, from 5.52 percent at the beginning of the year, after a US$15 billion government bailout in April. The bank expects the ratio to rise to 15 percent after the initial public offering. Regulators require banks to maintain a minimum 8 percent capital adequacy.

China is pushing State-owned banks to restructure and sell shares to foreign and public investors, preparing them for fiercer competition with HSBC Plc, Citigroup Inc, and other overseas rivals when the government deregulates the industry after 2006.

Bank of China has sold 26 billion yuan (US$3.2 billion) of subordinated bonds and disposed of 292 billion yuan (US$36 billion) of sour debt in its reorganization. China Construction Bank has issued 23.3 billion yuan (US$2.88 billion) of debt and unloaded 183.8 billion yuan (US$22.69 billion) of non-performing loans. Each bank received a US$22.5 billion government bailout in December 2003.

ICBC, which has 5.7 trillion yuan (US$703.7 bllion) of banking assets - or about one-fifth of China's total - transferred 246 billion yuan (US$30.37 billion) of bad loans to the government and sold 459 billion yuan (US$56.67 billion) of sour debts to asset management companies this year. President Jiang Jianqing expects the bad-loan ratio to fall below 4.3 percent this year, from 18.99 percent at 2004-end.

The Beijing-based lender has hired China International Capital Corp, ICEA Capital Ltd, a unit of ICBC, and CITIC Securities Co, the nation's No 2 securities firm, to reorganize its assets before a share sale that may raise as much as US$10 billion.

Royal Bank of Scotland Group Plc, Merrill Lynch & Co and the Li Ka-shing Foundation said on Thursday they will pay US$3.1 billion for 10 percent of Bank of China. Bank of America Corp, the No 2 US lender, agreed in June to pay US$3 billion for 9 percent of China Construction Bank.

(China Daily August 20, 2005)