ICBC raises funds with bond offer this month
By Zhang Dingmin (China Daily)
Updated: 2005-07-09 08:45

The Industrial and Commercial Bank of China (ICBC) plans to issue its first batch of subordinated bonds later this month as part of efforts to boost its capital base ahead of an initial public stock offering.

"The proceeds will be used to replenish our second-tier capital,"Tang Lingyun, deputy general manager of the bank's Treasury Department, said on Friday.

But the quota for the first batch has yet to be decided by regulators, the official told a conference promoting the bank's upcoming bonds and new products.

China's largest commercial bank plans to issue a total of 100 billion yuan (US$12 billion) in subordinated bonds to bring its capital adequacy ratio up to an 8 per cent minimum regulatory requirement.

Bank officials declined to say whether it has obtained all regulatory approvals for the debt issue plan, but Jiang Jianqing, the bank's president, said on Tuesday that both its efforts to usher in foreign strategic investors and the debt issue plan "are proceeding smoothly."

The State-owned lender received a smaller-than-expected US$15 billion capital injection from the Chinese Government in April, which brought its core capital to 248 billion yuan (US$29.8 billion), representing a 6 per cent upward core capital adequacy ratio.

Proceeds from the subordinated bonds, which rank behind other liabilities but before capital in terms of claims on bank assets, are categorized as non-core capital.

Chinese banks are increasingly using subordinated bonds to replenish their capital base as part of efforts to face ever-fiercer foreign competition. The majority of Chinese banks fall short of the 8 per cent requirement.

A total of 150 billion yuan (US$18 billion) in such bonds have been issued over the past year or so by a few Chinese banks, including the Bank of China (BOC) and China Construction Bank, another two State-owned lenders that received a combined US$45 billion of recapitalization at the end of 2003.

Tang said the bank expects strong market demand for the bonds, which typically carry yields nearly 40 basis points higher than Treasury bonds of corresponding maturities due to factors such as higher risk and lack of tax favours.

On the supply side, only the BOC had one issue of subordinated bonds this year so far.

On the demand side, the gap between deposits and loans has broadened this year, and insurance companies collected more premiums, Tang noted.

"It looks like our bonds will be a very good investment product in the market," she said.

Analysts said earlier that if the bank crams all the 100 billion yuan into this year, bond prices in the market may be affected given an expected 45 billion yuan (US$5.42 billion) of Treasury bonds and corporate bonds are to be issued in the later half of the year.

Close