Bank of China US$8.8b plan reflects urgent cash need

HONG KONG: Bank of China shares fell in Hong Kong on Monday, July 5 outpacing broader market declines, after it announced a 60 billion yuan (US$8.86 billion) fundraising plan, the sudden timing of which caught many off guard and sparked talk that the country's No.4 lender may urgently need cash.

Bank of China's Hong Kong-listed shares were down 1.5 percent in early trade, while its Shanghai-listed shares were down 0.7 percent, both about double declines in the broader markets, when trading resumed following a suspension on Friday.

The bank said late on Friday it planned to raise up to 60 billion (US$8.8 billion) through a rights offer in Shanghai and Hong Kong, which would see shareholders get up to 1.1 rights shares for every 10 shares held.

The bank, which raised about US$5.9 billion via convertible bonds in Shanghai last month, joined domestic rivals in a rush to replenish funds depleted by a 2009 lending spree and to meet a tighter capital adequacy ratio demanded by regulators.

Even with the convertible bonds and rights issue -- which could raise nearly $15 billion combined -- Bank of China's capital adequacy ratio would still only reach about 12 percent, versus a government mandated minimum of 11.5 percent, according to some analysts.

"At present, Bank of China is the one that needs the money most badly," said Liu Yinghua, an analyst with Ping An Securities. "Other major banks will also likely to do one more round of fundraising next year, if not this year." - Reuters


-by The Edge Malaysia