SHANGHAI Bank of Communications (BoCom) (3328.HK) said on Monday it could still meet its capital needs after slashing its fundraising plan to take account of weak markets, in a move that bodes ill for rival AgBank's giant IPO.
BoCom said the rights issue plan, cut by 20 percent on Sunday, will suffice for the next three years and has fully taken into account investors' interests in a weak stock market.
The downsizing underscores the harsh reality Chinese lenders face as they rush to raise billions of dollars to replenish capital, and could trigger similar moves by rivals, including Agricultural Bank of China ABC.UL, which is preparing for what could be the world's largest IPO aimed at raising as much as $30 billion.
"BoCom's move reflects current market conditions as well as investor concern toward banking stocks," said Qiu Zhicheng, analyst at Haitong Securities in Shanghai. "The market is forcing banks to scale back their fundraising and AgBank may have to lower its target as well."
BoCom, China's fifth-biggest lender, said in February that it planned to raise as much as 42 billion yuan ($6.1 billion) through a 1.5-to-10 rights issue, but on Sunday revised down the capital raising target by one fifth, to 33.1 billion yuan.
"Our revised fundraising target can meet our capital needs while also enabling our shareholders to make higher investment returns," Executive Vice President Qian Wenhui told reporters in Shanghai.
Qian added that HSBC Holdings Plc (HSBA.L)(0005.HK), which owns about a fifth of BoCom, would fully participate in the rights issue. BoCom will take subscriptions for the A-share portion from June 10-21.
"We hope our very attractive pricing can lift investor confidence toward banking stocks amid current market sluggishness," he said.
BoCom (601328.SS) will offer 1.5 Shanghai-listed A shares at 4.5 yuan each for every 10 shares held by existing shareholders, while additional Hong Kong-traded H shares will be priced at HK$5.14 apiece.
The pricing, which represents 1.1 times BoCom's forecast book value for 2010 and 5.9 times earnings, is "very attractive", and shareholders who choose not to participate would "suffer badly", Qian said.
BoCom shares fell 1.6 percent to HK$8.06 in Hong Kong by midday break, while its Shanghai-listed A shares dropped nearly 3 percent in afternoon trade to 6.2 yuan.
Chief Financial Officer Yu Yali said on Monday that BoCom's completed rights issue would lift BoCom's core capital adequacy ratio (CAR) by at least 1.6 percentage points.
BoCom's CAR, a key measure of a bank's ability to absorb potential losses, stood at 11.73 percent at the end of March, compared with the 11 percent minimum required for big state banks. Core CAR was at 8.12 percent.
BoCom and rivals including Bank of China (601988.SS) (3988.HK), China Construction Bank (CCB) (0939.HK)(601939.SS) are rushing to raise funds to bolster balance sheets stretched by a lending spree last year in support of government efforts to bolster economic growth.
But a more than 20 percent tumble in China's benchmark stock index .SSEC, triggered by fears of a slowing economy and tighter liquidity, is making it harder for banks to go ahead with their original plans.
AgBank, the last of China's four big state-owned banks to go public, said on Friday that it plans to sell a 15 percent stake in a dual listing in Shanghai and Hong Kong.
AgBank hopes to raise up to $30 billion, but analysts said the lender may end up raising much less, if it has to lower IPO price target under market pressure.
CCB Chairman Guo Shuqing told Reuters in an interview in May that the lender may delay its planned $11 billion capital-raising to early next year due to uncertain market conditions. ($1=6.83 Yuan) (Editing by Lincoln Feast)