Bank of Nanjing plans to raise up to Rmb10 billion ($1.6 billion) by selling 100 million preferred shares through a domestic private placement, the Chinese city commercial bank said on Wednesday.
With the intention of becoming the latest Chinese lender to tap capital markets to meet tougher capital rules, Bank of Nanjing said it will sell the shares to no more than 200 investors in the A-share market.
Local broker analysts estimate that the earliest possible timing of the placement is the fourth quarter, once shareholder and regulatory approval has been secured.
The Shanghai-listed lender has previously flagged the share issue but in a regulatory filing with the Shanghai Stock Exchange on Wednesday, it offered more details including the method of distribution and eligibility, as well as the terms and conditions.
The dividends are non-cumulative and there is a mandatory conversion into ordinary A-shares that would be triggered if the bank’s tier-1 common capital ratio fell to, or below, 5.125%.
In addition, the bank is entitled to redeem all, or part, of the preferred shares after five years at a price equal to their nominal value plus any declared but unpaid dividends for the then-current dividend period.
Preferred stock shareholders typically do not have voting rights but have seniority over common stock shareholders in the event of asset dispersal in a bankruptcy. Banks can replenish their tier-1 capital through preferred shares, something not possible by issuing bonds.
Capital pressure
China's lenders have come under capital pressure in recent years as the country's economy has slowed and bad debts have piled up in the banking system. Bank of Nanjing is the latest bank to follow the lead of its larger state-owned peers looking to replenish capital and meet tougher regulatory capital requirements.
Under China’s Basel III requirements, the minimum standard for a bank’s tier-1 capital adequacy ratio is 7.5%. The largest banks have a tier-1 capital adequacy ratio requirement of 7.9%, rising to 9.5% by the end of 2018.
China's larger banks have already aggressively replenished their capital base by raising equity including preferred shares. Bank of China, Industrial and Commercial Bank of China, and Agricultural Bank of China have between them raised a total of $34 billion in the last nine months by issuing preferred shares on the onshore and offshore markets, according to Dealogic data.
Meanwhile, Bank of Communications, China’s fifth-largest lender by assets, this month also unveiled a plan to issue offshore preferred shares to raise Rmb15 billion. It was given the green light by the Chinese regulator in mid July.
Bank of Nanjing’s board of directors approved its proposed sale of preferred shares on Tuesday. It is still subject to shareholder approval and needs a formal nod from the China Banking Regulatory Commission and the China Securities Regulatory Commission later on.
Strong performer
According to its mid-year report, the bank’s net profits jumped by 25% compared with the first six months of 2014 to Rmb3.6 billion while its revenue grew by 47% to Rmb11 billion. In contrast, the average profit growth rate was 3.2% for all 16 A-share listed Chinese banks in the first quarter period, according to Chinese media reports.
As at the end of June, Bank of Nanjing's non-performing loan ratio was 0.95%, compared with an average of 1.29% for China's city commercial banks, official data from the CBRC shows.
Its capital adequacy ratio and tier-1 capital adequacy ratios were 12.3% and 9.41%, respectively.
Guotai Junan, a large Chinese broker, estimates that the capital that it plans to raise from the preferred shares would help boost the bank’s tier-1 capital adequacy ratio by 1.97% this year.
