SHANGHAI (Reuters) - China Everbright Bank (601818.SS) may raise around $7 billion through a share sale in Hong Kong just six months after its Shanghai IPO, leading the way for more fundraising by smaller banks.
Chinese banks are facing a tough time as Beijing has been aggressively tightening liquidity, with the latest being a rise in the reserve requirement ratio on Friday, to cool its red-hot economy and bring down stubbornly high inflation.
Those measures and the possible slowdown in China's economy could prod banks, especially smaller ones, to consider raising more money from the capital market.
Everbright Bank had already expressed its intention to sell H-shares, but the share sale plan announced on Monday caught many analysts by surprise as it comes only six months after the mid-sized Chinese lender's $3 billion initial public offering on the Shanghai market.
"It is earlier than expected, as Everbright Bank should not be short of capital after last year's IPO," said Jin Lin, analyst at Orient Securities Co.
"This is a strategic move that would open a new channel of capital-raising for Everbright and shows that in the banking sector capital is the king. More cash enables companies to expand faster and make acquisitions easier," Lin added.
Last year, Everbright Bank joined China's biggest lenders such as Bank of China (601988.SS) (3988.HK) and China Construction Bank (601939.SS) (0939.HK) in a rush to raise funds to strengthen their balance sheets after a lending binge in 2009.
Everbright Bank plans to sell up to 10.5 billion H-shares with an over-allotment of up to 1.5 billion shares, which would bring its total H-share issuance to as much as 12 billion.
Based on Friday's close of 3.97 yuan for the lender's Shanghai-traded A shares, Everbright Bank could raise around 50 billion yuan ($7.6 billion) in Hong Kong before the over-allotment, according to Reuters' calculations.
But based on its IPO pricing in Shanghai in mid-August, the Hong Kong share sale would raise around $5.7 billion.
Everbright Bank's shares fell 0.3 percent in Shanghai, underperforming a 1.1 percent rise in the benchmark index, on expectations the company's Hong Kong IPO would dilute the company's earnings per share.
"Proceeds from the H-share issuance will be used to supplement our core capital, increase capital adequacy ratios, improve our profitability, help us ward off future risks and support rapid development of our businesses," Everbright Bank said in a statement to the Shanghai Stock Exchange.
The bank's core capital adequacy ratio may rise to 11-12 percent after its planned Hong Kong share sale, compared with an expected 8.8 percent in 2010, according to Guosen Securities analyst Qiu Zhicheng.
Everbright Bank is set to become the ninth Chinese bank to list in Hong Kong, where stock of most Chinese lenders now trade at a premium against their Shanghai-listed peers.
Hong Kong's stock market has sharply outperformed the Shanghai bourse since the start of last year, with the mainland exchange being hit by a slew of government steps to clamp down on high asset prices.
Everbright Bank said it would submit the H-share floatation plan at a shareholders' meeting on March 14. Its Hong Kong issue would include sales to qualified institutional investors in the United States and informal public issuance in Japan, known as POWL, it said. ($1=6.58 Yuan) (Additional reporting by Lu Jianxin; Editing by Muralikumar Anantharaman)