Bank of Jinzhou back with the begging bowl

The Liaoning-based lender proposes multiple fundraising plans to shore up its capital base just four months after its Hong Kong listing.

Bank of Jinzhou, which completed its Hong Kong initial public offering in December last year, has hitched up to capital markets again with multiple fundraising proposals that together could raise as much as Rmb28.5 billion ($4.4 billion).

The plan, published after the market close on Tuesday, includes a highly dilutive issue of 1 billion new shares in a private placement that could raise roughly HK$6 billion ($773 million) based on the bank’s last closing share price -- just short of the $790 million raised from its IPO less than four months ago.

The shares would be placed with a maximum of 10 qualified foreign investors and, in view of the proposed deal's large relative size, could dilute the interests of existing shareholders by as much as 66%.

In addition, Bank of Jinzhou is planning to float a further third of its existing share capital by listing on either the Shanghai or Shenzhen exchanges. That could raise roughly $1.5 billion even without factoring in the A-share premium over H-share valuations that is typically seen when companies are listed in both Hong Kong and mainland China.

The Liaoning-based lender is also proposing to issue up to Rmb10 billion in five-year SME-specialised bonds and a maximum Rmb4 billion in 10-year tier-2 capital bonds. Both will be issued in the Chinese interbank bond market and will not trade publicly.

All fundraising proposals are subject to shareholder approvals as well as from the China Banking Regulatory Commission and China Securities Regulatory Commission.

Raising capital buffer

These cash calls should have come as little surprise to investors given that Bank of Jinzhou has one of the lowest capital adequacy ratios among city commercial banks in China.

According to the bank’s 2015 financial report, its capital adequacy ratio improved only slightly to 10.5% from 10.45% a year earlier, in spite of the equity capital raised from the sale of a 23.56% stake through its IPO.

Bank of Jinzhou's tier-1 capital adequacy ratio also improved only marginally to 8.97% from 8.64% in 2014.

Although the capital adequacy ratio was above the regulatory requirement of 9.3% as of the end of last year, it was the lowest among all of the Hong Kong-listed city commercial banks. The latest reported capital adequacy ratios for these banks range from 10.9% to 15%, according to their filings with the Hong Kong stock exchange.

Bank of Jinzhou’s capital pressure could be attributed to its aggressive expansion plan over the last three years, ICBC said in a research report last November. Its asset quality has also depreciated as a result of its slowing economy and population decline in northeast China, where the bank generates all of its revenue from.

Intriguingly, Bank of Jinzhou is currently the highest valued stock among all Chinese banks listed in Hong Kong. Its market capitalisation of HK$34.8 billion is equivalent to 1.43 times its 2015 book value after a 30% rise in its stock price since listing.

In comparison, most of the big banks are trading below last year's book value. The H-shares of China’s so-called Big Four banks are trading at between 0.64 and 0.77 times their respective book values. 

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