February 6, 2020 / 2:00 PM / 10 days ago

China's Huishang Bank to raise $3 billion to take over Baoshang's four branches

BEIJING (Reuters) - China’s Huishang Bank plans to raise up to 20 billion yuan ($2.9 billion) from bonds to keep its liquidity healthy after taking over four branches of Baoshang Bank which China’s financial regulators took over last summer.

The Anhui-based commercial bank plans to issue tier-2 capital bonds worth $2.9 billion by 2021 to ensure its capital adequacy level is higher than regulatory requirements, it said in a filing with the Hong Kong Stock Exchange on Thursday.

Huishang said it will take over assets and business worth 106.5 billion yuan of Baoshang’s Beijing, Shenzhen, Chengdu and Ningbo branches. It will also invest up to 3.6 billion yuan for acquiring a 15% stake in a new provincial bank that counts the local government of Inner Mongolia as the largest shareholder.

Financial regulators have been looking for investors for the

reconstruction of Baoshang since they took control of the Inner Mongolia-based bank with serious credit risks last May. The takeover rattled domestic markets, pushing up interbank funding costs for some smaller lenders and prompting the central bank to inject cash into the banking system to prevent contagion risks.

Huishang was one of the biggest creditors of Baoshang’s interbank debts, with an unidentified loss yet to be “repaid under current laws and regulations,” the bank said in an online presentation last August.

The Inner Mongolia Autonomous Region’s government will use its finances and state-owned enterprises to hold a 50.16% stake in the new bank while the central bank’s Deposit Insurance Fund Management Co. will hold 29.84%, according to the statement. A subsidiary of China Construction Bank will also hold around 5% in it. The statement did not elaborate if the new bank is linked to Baoshang Bank.

Baoshang Bank will be taken over by local governments and a group of state firms, Reuters reported last month, citing a central bank official with direct knowledge. Other strategic investors include Huishang Bank, China Construction Bank and a national deposit insurance fund managed by the central bank, the official said.

Reuters was first reporting Huishang’s plan to take over the four branches of Baoshang in January.

Writing by Zhang Yan, Cheng Leng; Editing by Chizu Nomiyama

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