CMB seeks to raise $5.68 billion in rights issue

China Merchants Bank, the country's sixth-biggest bank by assets, outlines plan for an A-share and H-share rights issue to boost its capital buffers after a period of unsustainable loan growth.
The rights issue follows an unsustainable expansion of the bank’s balance sheet during the second quarter, say analysts.
The rights issue follows an unsustainable expansion of the bank’s balance sheet during the second quarter, say analysts.

China Merchants Bank (CMB) said it aims to raise $5.68 billion via an A-share and H-share rights issue to fatten its capital buffers.

The issue would be the second-biggest share sale globally so far this year, behind Japan Tobacco's $7.78 billion offering in March, according to data provider Dealogic.
 
The A-share rights offer should total Rmb 28.56 billion, while the H-share offer is HK$7.95 billion.

China’s sixth-biggest bank by assets said in July it would raise as much as Rmb 35 billion ($5.72 billion).

The rights issue follows an unsustainable expansion of the bank’s balance sheet during the second quarter, say analysts.

CMB’s asset base grew 8.5% quarter-on-quarter, an annualised rate of 38%. Meanwhile, loans grew by 5.4%, the fastest pace in three years, according to analysts.

Also, CMB’s core capital adequacy ratio fell to 8%, below the minimum 8.5% that will be needed after implementation of Basel III. The ratio is a measure of the bank’s capital. Regulators globally track the ratio to ensure lenders can absorb some losses without placing stress on countries’ financial systems.

Mike Werner, a senior analyst at Bernstein Research, estimated that the rights issue would improve CMB's capital ratio by 120 to 125 basis points, but that it would also dilute shareholders by 15% and drag down the bank’s return on equity by about 300 to 320 basis points.

Werner is also concerned that the bank has recently increased its exposure to questionable collateral (trust beneficiary rights) in its interbank book.

CMB is selling 1.74 H-shares for every 10 existing H-shares at a price of HK$11.68. The subscription period will run from September 5 to September 19.

The joint global coordinators on the H-share offer are CICC, Goldman Sachs, UBS and Citigroup. The joint book runners are CICC, Goldman Sachs, UBS, Citigroup, CMS HK and CMBI.

China Merchants is also selling 1.74 A-shares for every 10 existing A-shares at Rmb 9.29 each.

The A-share rights offer totals Rmb 28.56 billion.

¬ Haymarket Media Limited. All rights reserved.