China Minsheng Banking Corp, the nation's first privately owned lender, plans to sell up to 4.3 billion yuan (US$533 million) of hybrid bonds to shore up its capital and sustain a growth rate that has averaged 49 percent in the past three years.

 

The 15-year callable bonds, available only to institutional investors on China's inter-bank market, will allow the lender to delay interest payment if the lender's capital adequacy ratio falls below 4 percent or it is unable to pay other bondholders who have priority claims over its assets, Beijing-based Minsheng Bank said in a statement to the Shanghai stock exchange yesterday.

 

China's banking regulator is encouraging lenders to sell bonds and shares to boost capital and prepare for greater competition at the end of this year, when restrictions on overseas banks are lifted. Fujian-based Industrial Bank Co last month received approval to sell 4 billion yuan (US$490 million) of hybrid bonds.

 

"All the proceeds will be used as supplementary capital," Minsheng said in the statement. "The bond sale will enhance our operating capacity to help achieve the overall strategy."

 

Minsheng Bank needs capital to increase market share as competition with overseas rivals intensifies. The lender, with less than a tenth of the assets of China's biggest banks, in June postponed its plan to raise US$750 million in an initial public offering in Hong Kong, citing poor market conditions.

 

Minsheng Bank's total loans outstanding jumped 41.7 percent in 2004 after rising 54.6 percent in 2003, according to Bloomberg data. The bank's capital adequacy ratio, a key measure of lenders' financial strength, stood at 8.05 percent as of June 30, close to the 8 percent minimum set by the regulator. That's down from 8.59 percent at the end of 2004.

 

A capital shortage would cut into the bank's earnings by limiting loan growth and reducing interest income. Minsheng, founded a decade ago by 59 private corporate investors with each owning less than 10 percent stake, earned 1.99 billion yuan (US$250 million) in the first nine months of last year, up 27 percent from the year-before period.

 

The lender said last month it won approval to sell 30 billion yuan (US$3.7 billion) of regular bonds by June 2007 and 1.4 billion yuan (US$170 million) of subordinated bonds. Holders of hybrid bonds carry a claim over the bank's assets after subordinated bondholders. The regular bonds didn't strengthen the bank's finances because, unlike subordinated and hybrid bonds, they didn't count as capital.

 

Minsheng Bank is "actively seeking high-quality foreign strategic investors," Vice-Chairman Zhang Hongwei said in September.

 

Temasek Holdings Pte, a Singapore government fund, may increase its stake in Minsheng Bank to 10 percent, which would make it the largest shareholder, Hong Kong Economic Times reported this month. Temasek earlier bought a 4.55 percent stake in Minsheng Bank, while International Finance Corp, an investment arm of the World Bank, owns 1.22 percent.

 

Minsheng Bank's yuan-denominated Class A shares fell 0.01 yuan, or 0.2 percent, to 4.21 yuan (52 US cents) as of yesterday morning.

 

(China Daily January 25, 2006)