China Merchants Bank Co, the nation's biggest publicly traded lender, won approval for a record 10 billion yuan (US$1.2 billion) convertible bond sale, spurning minority investors' complaints.

Founding shareholders, who control 73 percent of the lender, supported the sale because the mainly state-owned companies hold non-tradable shares. Minority shareholders, including China Asset Management Co, voted against the sale saying the creation of new shares may lower earnings per share and cause the price of the publicly traded stock to fall.

"There's nothing we can do with the voting system," said Wu Gang, a fund manager at Beijing-based Changsheng Fund Management, who voted against the convertible bond sale. "We hope the securities regulator will take action to protect shareholder interests."

The plan highlights risks faced by minority shareholders in China at a time when regulators are opening the US$477 billion domestic stock market to overseas funds. China plans to open its banking industry to competition from overseas lenders by 2005, three years after it joined the World Trade Organization.

Shao zuosheng, the company's corporate secretary, told the more than 200 shareholders and officials at the meeting that 88 percent of the voting shares approved the sale.

"The reality is we have to raise funds in the capital market to strengthen our capital base in order not to lose out after China fully opens its banking industry," said Ma Weihua, the bank's president, at the meeting in Shenzhen.

To mollify shareholders, Ma said the company may "look into ways" to modify the sale proposals, including increasing the conversion premium on the bonds to 10 percent. That's twice as much as fund managers are expecting. The company earlier said the conversion premium would be between 0.1 percent and 15 percent.

The bond sale, which is equivalent to a fifth of China Merchants Bank's market value, prompted similar plans from property developer China Vanke Co and Cosco Shipping Co, a unit of China's biggest shipping line.

state-owned businesses or government institutions typically control as much as 75 percent of publicly traded Chinese companies through holdings of non-tradable stock.

(Eastdaily.com October 16,2003)