CCB plans debt issue to rebuild capital

An outlet of China Construction Bank in Xuchang, Henan province. Geng Guoqing / For China Daily

China Construction Bank Corp said on Monday it plans to sell 20 billion yuan ($3.24 billion) in Basel III-compliant subordinated debt in China to replenish its tier-2 capital.

It didn't give a timeline at a press conference in Beijing. The plan is in line with a previous announcement to issue less than 60 billion yuan in Basel III-compliant subordinate debt before the end of 2015.

Unlike existing subordinated debt, Basel III-compliant subordinated debt can be converted into equity, or written off, if bank capital falls below a preset threshold. Investors can lose all their money if a regulator decides a bank is about to fail. Existing subordinated debt is only written off should a bank actually fail.

China began practicing Basel III standards at the start of 2013.

Chinese banks have an ample capital buffer, but analysts believe that they will need more as the country's economic slowdown raises the chances that loans will sour. 

China's economy, the world's second-largest, is forecast to grow 7.4 percent this year, the slowest pace since 1990, based on the median estimate in a Bloomberg News survey. The State Council, or cabinet, said on March 19 it will speed up construction projects.

At the end of last year, CCB's core tier 1 and total capital ratios were 10.75 and 13.34 percent respectively. The China Banking Regulatory Commission requires a minimum core tier 1 ratio of 6.5 percent and a total capital ratio of 9.5 percent from banks that are considered systemically important.

CCB said it may also issue preferred shares, had talked with regulators and has pinned down an issue plan.

CCB could be the first company to try out preferred shares in China, after a CBRC official said this month that regulations governing preferred shares have been drawn up and will be published "at the right time".

"We have been preparing for preferred shares for a long time," CCB's Vice-President Zhu Hongbo said.

Ping An Securities Co Ltd estimated the banking industry will have to issue as much as 700 billion yuan in preferred shares to raise its capital ratio by 1 percentage point.

CCB's shares rose 1.31 percent in Hong Kong to HK$5.43 (70 cents) a share. The benchmark Hang Seng Index added 0.39 percent. The stock has declined 7.5 percent this year in Hong Kong, compared with the Hang Seng's 5 percent drop.

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