China's AgBank to raise up to $15.8 billion via private placement

BEIJING (Reuters) - Agricultural Bank of China (AgBank) 601288.SS1288.HK, the country's third-largest bank, said on Monday it would raise as much as 100 billion yuan ($15.81 billion) in the biggest A-share private placement by a listed Chinese commercial bank.

FILE PHOTO - A logo of the Agricultural Bank of China is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. Picture taken October 19, 2017. REUTERS/Chris Helgren

The bank will use the money to replenish its common equity tier 1 capital and boost capital adequacy of the bank, AgBank said in a securities filing.

The fundraising comes as China’s large state banks step up efforts to speed up write-offs and boost bad loan buffers as part of a nationwide campaign to de-risk and de-leverage the commercial banking industry, where non-performing loans are at 12-year highs.

China’s financial regulators have come up with rules to broaden banks’ capital tools and relax loan provisioning requirements to give banks greater scope to sell-off bad loans and move off-the-balance sheet business on to their loan books.

The China Banking Regulatory Commission (CBRC) has cut the provision coverage ratio for commercial banks to 120-150 percent from 150 percent, a move that will give banks more capital so they can lend more to support economic activity, Reuters reported last week citing sources.

The CBRC is also amending rules for commercial banks to issue perpetual bonds, convertible capital instruments, and other innovative loss-absorbing debt instruments to replenish their capital, it said on Monday.

The CBRC requires systemically important banks such as AgBank to have a minimum core tier-1 ratio capital adequacy ratio of 8.5 percent by the end of 2018 and a minimum tier-1 level of 9.5 percent.

Banks are responding to the tighter regulation by reviewing their capital planning and implementing measures, including access to capital markets, said Nicholas Zhu, a senior analyst with Moody’s Investors Service.

UBS analysts estimated in January that Chinese banks had already raised 861 billion yuan in new capital between 2014 and 2017 - most via private placements by unlisted banks.

In October, AgBank issued 40 billion yuan worth of tier-2 capital bonds, with coupon rate of 4.45 percent.

“Currently, most banks have adequate capital levels and there isn’t a general need for refinancing via common equity issuance given the circumstances of slowing growth of risk assets,” Ma Kunpeng, a senior financial analyst with Shenwan Hongyuan Securities, said.

After the private placement, AgBank’s core tier 1 capital adequacy ratio will increase to 11.23 percent from 10.38 percent and its tier 1 capital adequacy will increase to 11.90 percent from 11.06 percent

Central Huijin Investment Co [SASAWH.UL], the Ministry of Finance, China National Tobacco Corp, Shanghai Haiyan Investment Management Co, Zhongwei Capital, China National Tobacco Corporation Hubei Province Co and NCI will be the subscribers to AgBank’s private placement, the bank said.

State-owned investment company Central Huijin has proposed an investment of 40.03 billion yuan in AgBank, while the finance ministry has proposed a 39.21 billion yuan investment, according to the filing.

In a separate statement, AgBank reported a 4.90 percent rise in net profit to 192.96 billion yuan for 2017, while its non-performing loan ratio declined to 1.81 percent from 2.37 percent a year earlier.

Net interest margins stabilized at 2.28 percent in 2017, representing an increase of 0.03 percentage points from 2016.Basic earnings per share increased to 0.58 yuan in 2017 from 0.55 yuan a year earlier.

“We expect AgBank’s non-performing loans, net interest margins and other performance indicators to continue to improve,” Ma added.

($1 = 6.3233 Chinese yuan renminbi)

Reporting By Shu Zhang and Matthew Miller; Editing by Muralikumar Anantharaman and Jane Merriman