CCB mandates six for rights issue

China Construction Bank (CCB) has, according to sources, mandated six banks to help arrange a rights issue that it has earlier said could raise up to Rmb75 billion ($11 billion) as the cash calls by the Chinese banks gather pace.

The selection of banks comes after Agricultural Bank of China successfully raised $19.2 billion from its initial public offering and Bank of China announced earlier this month that its up to Rmb60 billion ($8.8 billion) rights issue will be launched after a general meeting on August 20 -- assuming it gets shareholder approval to proceed.

The sources said the international banks involved in the CCB rights issue will be Bank of America Merrill Lynch (BAML), Credit Suisse and Morgan Stanley. They will be joined by domestic banks CCB International, China International Capital Corp (CICC) and Citic Securities.

There was no information which banks will arrange the H-share tranche and which will arrange the significantly smaller A-share tranche. However, the sources said CCB has indicated that Morgan Stanley, CCBI and CICC will take a leading role on the deal, although it wasn't clear whether that would mean that they will also formerly be named global coordinators.

It seems likely that there may be more banks involved in the H-share tranche, since it will account for 96.15% of the total deal -- as per the split between the outstanding A- and H-shares. Also, the H-share tranche will be fully underwritten by the arranging banks, while the A-share will not be underwritten.

In June, CCB said that its largest shareholder, state-owned holding company Central Huijin Investments, which owns 48.23%, will take up its entitlement in full, thus reducing the amount of shares that the banks will have to underwrite.

The international banks that have been chosen are no great surprise. Morgan Stanley has a long relationship with CCB, having jointly set up CICC as the first Sino-foreign investment bank back in 1995. CCB's stake in CICC has since been transferred to China Jianyin Investment, which is wholly owned by Huijin Investment. Morgan Stanley and Credit Suisse were also both involved in CCB's IPO in 2005, while BAML has a relationship with CCB through its ownership of 25.6 billion of CCB's H-shares, or 11.4% of the H-share capital. The investment dates back to before CCB's IPO and was originally made by Bank of America.

Meanwhile, CICC and Citic Securities are two of the largest domestic Chinese brokerages that are frequently called upon for large deals. And CCBI is of course the bank's own internationally focused investment banking arm.

There have been concerns that the massive capital-raising exercises among the Chinese banks this year would hamper the market -- including Agricultural Bank's massive IPO, their combined fund raising in the second half of 2010 could total as much as $50 billion -- and indeed the largest banks did underperform in the first half, while the Shanghai stockmarket is one of the worst performing markets in the world year-to-date. However, the fact that Bank of China (BOC) and Industrial and Commercial Bank of China (ICBC) have both decided to do a rights issue instead of a follow-on sale targeted at the wider investment community, have calmed most of those fears and allowed the bank stocks to recover some lost ground in the past six weeks. The shift towards rights issues is said to be prompted by the fact that the Chinese government doesn't want its shareholdings to be diluted.