CCB and BOC seek $18.2 billion from rights issues

China Construction Bank yesterday launched its long-awaited rights issue, saying it is seeking to raise up to Rmb61.6 billion ($9.2 billion) from the sale of new shares to existing holders of its A- and H-shares. The sale is slightly smaller than the Rmb75 billion that the Chinese lender had earlier flagged and sought approval for from its shareholders, which could be the result of stronger-than-expected earnings. However, the shares are also offered at a more than 40% discount.

The offering comes just days after the Bank of China kicked off its rights issue of up to Rmb59.88 billion ($9 billion). It too is offering to sell its new shares at a deep discount. Both banks are looking to improve their core capital ratios to meet new regulatory requirements and in order to continue to grow their lending. Both deals were approved by the China Securities Regulatory Commission last Thursday.

Since the fundraisings are taking place through rights issues, they are unlikely to put any pressure on the broader market. Indeed CCB’s Hong Kong-listed H-shares gained 2.2% to HK$7.81 in the wake of the announcement yesterday morning. However, the fact that CCB and BOC have chosen to come to the market at the exact same time could have some short-term implications for those institutional shareholders that own shares in both and will now have to come up with the money to subscribe for shares in two banks.

Central Huajin Investment, which is the largest shareholder in both banks on behalf of the Chinese government, has said it will take up its full entitlement in both deals. Huijin owns 67.5% of BOC and 48.2% of CCB, in both cases in the form of A-shares.

Bank of America hasn’t yet commented on whether it will subscribe to any of CCB’s rights shares. The US bank owns a 10.95% stake in the Chinese Bank.

As reported earlier, CCB is offering 0.7 rights shares for every 10 existing A- and H-shares and has set the price at HK$4.38 per new H-share and the equivalent Rmb3.77 per A-share. The H-share price represents a 42.7% discount versus Monday’s close of HK$7.64 and a 41% discount to the theoretical ex-rights price (Terp) which is estimated at HK$7.43.

The A-shares come at a significantly tighter discount of 27% versus a Terp of Rmb5.07, reflecting the fact that the bank’s H-shares trade at a premium to its China-listed shares. CCB’s A-shares closed at Rmb5.16 on Monday.

Under the plan, approximately 16.36 billion new shares will be issued, of which 15.7 billion, or 96.15% of the total deal, will be Hong Kong-listed H-shares. Only 630 million of the new shares will be Shanghai-listed A-shares earmarked for mainland investors. The H-share portion of the deal will be fully underwritten by Bank of America Merrill Lynch, BOC International, CCB International, China International Capital Corp, Citic Securities, Credit Suisse and Morgan Stanley in their capacity as joint lead underwriters and joint bookrunners.

CCBI, CICC and Morgan Stanley are also acting as joint global coordinators for the combined A- and H-share offering, which was approved by the bank’s shareholders in June.

Shareholders who wish to subscribe to excess H-shares can do so and those who want to sell their rights in the market can do so between November 23 and December 3. The record day for the H-share offering is November 16 and the subscription period will run from November 19 to December 8.

The A-share portion of the deal isn’t underwritten and will need a subscription rate of at least 70% in order to proceed.

Meanwhile, BOC said on Friday that it will offer its existing shareholders to buy new H-shares at HK$2.74 apiece. This equals a 39% discount to Terp, which was estimated at HK$4.49 based on the closing price last Thursday. The A-share price has been set at Rmb2.36 per share.

The bank is offering one new share for every 10 existing shares. If taken up in full, BOC will issue approximately 25.38 billion new shares, of which 30% will be H-shares and the remaining 70% A-shares. As with CCB, the H-share tranche is fully underwritten, while the A-share tranche needs a 70% subscription rate.

BOC’s offering is arranged by joint bookrunners BOC International, Bank of America Merrill Lynch, CCB International, Credit Suisse and ICBC International. BOCI is the sole global coordinator.

The record date for the H-share offering is November 12, the rights will be tradable in the open market from November 18 to 30 and the subscription will close on December 3.