Sat, Sep 05, 2020 page12

• Chinese banks planning large sales of bonds

  • Bloomberg
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  Chinese banks are planning near-record bond sales this month to replenish capital levels weakened by a surge in cheap loans to struggling businesses and sliding earnings.

  Industrial & Commercial Bank of China Ltd (中國工商銀行), the world’s largest lender, and three domestic competitors plan to sell a combined 195 billion yuan (US$28.5 billion) of perpetual or tier 2 capital bonds, said people working on the plans, who asked not to be named discussing internal matters.

  Their issuance alone would amount to the second-highest monthly sales ever in China, data compiled by Bloomberg showed.

  Enlisted to ease the financial hardship of consumers and firms amid the COVID-19 pandemic, Chinese banks are under increasing stress.

  Authorities have called on them to forgo 1.5 trillion yuan in profit by providing cheap funding, deferring payments and increasing lending, eroding their capital buffers as they struggle with a record pile up of non-performing loans (NPL).

  “Banks need to make long-term preparations to stabilize their asset quality, hence comes the demand to replenish both tier 1 and tier 2 capital,” analysts led by Zhang Jiqiang (張繼強) at Huatai Securities Co (華泰證券) wrote in a report last month. “NPLs will probably continue to rise.”

  While they still currently meet minimum domestic requirements with a safe margin, China’s four biggest banks face a shortfall of US$220 billion to meet global capital rules that are to take effect at the start of 2025, S&P Global Ratings said in a report last month.

  That gap might increase to more than US$900 billion over the next few years as economic pressure weighs on earnings, S&P said.

  This month alone, Industrial and Commercial Bank of China Ltd (ICBC, 中國工商銀行) and China Guangfa Bank Co (廣發銀行) aim to issue 60 billion yuan and 45 billion yuan of tier 2 bonds respectively, the people said.

  Bank of Communications Co (交通銀行) plans to raise 30 billion yuan from a perpetual bond sale, while Postal Savings Bank of China Co (中國郵政儲蓄銀行) is seeking to sell 60 billion yuan, they said.

  The planned sales are part of the broad fundraising plans proposed by the banks to their boards and shareholders earlier, the people said.

  Some of the issuance is pending regulatory approval, one of the people said, which might delay the timing of the sale.

  ICBC declined to comment.

  Bank of Communications and Guangfa Bank did not immediately respond to requests seeking comments.

  Postal Savings Bank said in a text message that it would choose an appropriate window for the offering.

  Investor enthusiasm for the debt deluge might be limited. Weakening demand, as reflected in sliding prices on subordinated notes, does not bode well for new issues, the Huatai analysts said.

  The price of Agricultural Bank of China Ltd’s (中國農業銀行) 4.28 percent perpetual bond declined to a one-year low this month and a similar 3.69 percent note issued by Postal Savings Bank at the end of last month slid to the lowest level since it was issued in March, trading at 96.84 of its 100 face value.

  Policymakers have acknowledged concerns over capital at the banks.

  China Banking and Insurance Regulatory Commission spokesman Xiao Yuanqi (肖遠企) told a news briefing last week that no matter how the pandemic and the economy develop, the regulator would ensure a solid capital foundation.

  People’s Bank of China Vice Governor Liu Guoqiang (劉國強) said at the briefing that the Chinese central bank is working with government departments to ensure that banks have enough capital.
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