HONG KONG/SHANGHAI: Bank of China could announce a $6 billion share issue soon, sources said, in a move that may undermine the confidence of an already jittery stock market and make life tough for rival Agricultural Bank of China's mega IPO.
Bank of China's move, together with what could be the world's largest-ever IPO from AgBank, will aim to garner $30 billion in the weeks ahead, severely testing the appetite of investors in Hong Kong and Shanghai, where stocks have fared poorly amid a broader global sell-off.
"Bank of China's fund-raising plan would be another blow to an already fragile market, and could also sap demand for AgBank shares and drive down valuations of banking stocks," said Jin Lin, a Shanghai-based analyst at Orient Securities.
"For mainland investors, it triggers fears that Bank of China may also announce share sale plans in the domestic market."
Bank of China, the country's fourth-largest lender, plans to tap its shareholders for about $6 billion via a rights issue, complementing a plan announced last month to raise $5.9 billion through a convertible bond sale in Shanghai, three sources who are familiar with the matter said on Friday.
They said the rights issue would occur in Hong Kong. But another source said the dual-listed bank could also be considering a rights issue for its shareholders in Shanghai, as domestic media reported the two issues could raise up to 60 billion yuan ($8.85 billion) combined.
Underwriters for the bank, whose Hong Kong and Shanghai listed shares were both suspended pending an announcement, were set to hold a meeting on Friday on the matter, said one of the sources.
A Bank of China spokeswoman had no comment on the suspension.
Bank of China had said in March it aimed to offer more Hong Kong-listed H-shares for subscription, which could be 20 percent of its H-share capital, potentially strengthening its balance sheet by about $7.7 billion.
AGBANK IPO
The latest BOC plan would come as AgBank, China's third-largest lender, prepares for a $20 billion-plus initial public offering via a dual listing in Hong Kong and Shanghai, in what could become the world's largest-ever IPO.
AgBank's offer to institutional investors for the Shanghai portion met with strong demand when it launched on Thursday, drawing 30 billion yuan in bids from potential strategic investors, a source with direct knowledge of the situation said.
Markets were unimpressed. Hong Kong shares closed at a three-week low on Friday, following a 5.2 percent decline in the second quarter. And Shanghai shares hit a 15-month low on Friday before reversing course to end up for the day. Still, they are down 27 percent so far this year.
Bank of China, AgBank and most other major Chinese lenders have announced plans to raise billions of dollars this year to bolster capital adequacy ratios that fell following a lending binge as part of China's 4 trillion yuan economic stimulus plan at the height of the global downturn.
The banking regulator is strongly pushing for the fund-raising, concerned about weakened balance sheets that could further deteriorate if many of the loans made during the lending boom start to go bad.
Others who have announced potential fund-raising plans include the nation's top two lenders, ICBC and China CONSTRUCTION [] Bank, although both of those plans could be delayed until markets improve, according to officials and media reports.
Chinese media also reported in May that the state council, or cabinet, has approved a combined 287 billion yuan fund-raising quota for the country's four biggest lenders.
"The market, whose liquidity is already weakened, is sure to be pressured if a 60 billion yuan fund-raising is being carried out," said Sheng Nan, an analyst with UOB Kay Hian, in reference to talk of Bank of China's plans. - Reuters
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