In the evening of yesterday, Industrial Bank (IB) announced that the application of the company for the non-open issuance of A-share stocks had been approved by the Issuance Examination Committee of China Securities Regulatory Commission at the 211 th session of 2012. With over half-year waiting, the issuance of tailored additional shares by IB finally came to a perfect end.
In the program, IB plans to issue 1.915 billion tailored additional shares to the five investors including the People's Insurance Company (Group) of China Limited, PICC Property and Casualty Company Limited, PICC Life Insurance Company Limited, China National Tobacco Corporation and Shanghai Eightrent ZhengYang Rental Co., Ltd. at the price of RMB 12.36 per share (the price determined in the issuance program is RMB 12.73 per share, but in line with the rules of Shanghai Stock Exchange, the cash dividends in 2011 should be deducted at the price of RMB 0.37 per share. Hence, the final issuing price is decided to be RMB 12.36 per share) to raise a total of funds about RMB 24 billion.
It's worth noting that, similar to the issuance of tailored additional shares by the Bank of Communications, the largest shareholders of main subscribers of the tailored additional shares of IB also include the Ministry of Finance and Social Security Fund. Tang Bin, Board Secretary of IB, says to the reporter of the daily that this shows the recognition of the state-owned business sector to the blue chip shares and functions to supply blood to the capital market indirectly. Meanwhile, it also signifies the rational attitude held by the regulatory authorities in channeling and guiding the market under the new circumstance.
Tailored additional shares attracting external funds to come into the market
A combination of channeling and guiding transmitting positive energy to the stock market
Considering the worries of investors about the “blood-drawing” effect of new shares to the stock market, the issuance of new shares fell into almost a stagnant state in this year. At present, only 800 IPO shares are in the queue. As declared by the regulatory authorities recently, it is not a permanent solution to delay the issuance of new shares, and the key is to channel and guide the listed companies to attract long-term capital to come into the market.
Not merely IPO has been accused of “blood-drawing”, but banks have also been harassed frequently regarding their refinancing. Nevertheless, the two important cases of tailored additional shares by banks provide a new idea for refinancing.
The financing model of tailored additional shares is adopted both in the refinancing of the Bank of Communications, which was completed in this August, and the refinancing of IB, which will be approved soon. Secretary Tang told the reporter that to choose tailored additional shares was a deliberative decision based on sufficient argumentation and taking into consideration many financing methods. Both the convertible bonds and rationed shares require money from the public, thus giving rise to a “blood-drawing” effect. Only tailored additional shares will cause the least impact to the market, so the model is encouraged and accepted by the regulatory authorities and investors.
Similarly, the issuance targets chosen by the Bank of Communications are also not all existing shareholders, but specific investors, including the Ministry of Finance, Social Security Fund, Pingan Asset Management Co., Ltd., China FAW Group Corporation, Shanghai Haiyan Investment Management Co., Ltd., Zhejiang Branch of China National Tobacco Corporation, and Yunnan Hongta Group. In terms of capital resource, both of them increase capital but not "draw blood” from the market. To the contrary, the external funds attracted help to extend the market capacity.
Tang believes that such financing program can not only meets the development requirements of banks themselves, but also be helpful to maintain the stability of market. While providing a new idea and reference to the market, it also wins the recognition of the regulatory authorities.
The state-owned business sector supporting the blue chip
The banking shares showcasing investment value
In IB's program of tailored additional shares worth about RMB 24 billion, the three companies under PICC subscribe about RMB 17 billion and China National Tobacco Corporation about RMB 5 billion. Both of them are of the background of “state-owned business”. For instance, the Ministry of Finance holds 88.72% of the total shares of PICC, or 30.6 billion shares; the National Council for Social Security Fund holds 11.28% of the total shares of the group, or RMB 3.891 billion shares. Similarly, the targets of tailored additional shares issued by the Bank of Communications are also composed of the state-owned businesses including the Ministry of Finance and Social Security Fund.
In terms of price, the closing price of IB hit RMB12.58 per share by November 28. The price of tailored additional shares is RMB 12.36 per share after the deduction of dividends, and the static discount is about 2%. Nonetheless, the stock price of the bank dropped below the issuing price in the previous period, so there is a risk to issue the share at a premium. The price of RMB 4.55 per share set by the Bank of Communications for the tailored additional shares before is a premium one. To participate in the program of tailored additional shares at a premium shows the vigorous support of participating institutions. Moreover, the subscribers of tailored additional shares all have promised a lock-up period of three or more years. This shows their recognition to the long-term investment value of the bank and confidence in its future development.
The support of the state to the banking shares can also be seen in its increases shares in the secondary market. Since Central Huijin Investment Ltd. promised to increase its shares in last October, it has increased its shares of the four major state-owned banks for many times by this third quarter. After Huijin Investment announced to launch a new round of campaigns to purchase more shares of the four major state-owned banks on October 10 of this year, the banking chip shares have become very popular in the bulk commodity trading market. According to the statistics of the daily, within the 30 trading days from October 15 to November 23, 12 banks have completed 24 bulk commodity transactions, with a total trading volume of 182,882,600 shares, worth RMB 7,152.930 billion. Of the 24 transactions, 16 are made at the “zero discount”, behind which is QFII. Banks with its stock price below the net asset value in batch boast high safety margins, so they have won the favor of QFII.
A favorable policy for the rebounding banking evaluation is that the regulatory authorities have formulated the “Chinese Basel Accord III” in a more prudent attitude. In the Measures on the Administration of Capital of Commercial Banks newly promulgated , more considerations are given to adapting the Chinese national situation and the state of the banking sector in the adoption of international standards. For instance, with regard to a specific regulatory index, the lower one is generally adopted. In the selection of the period for reaching a given standard, the regulatory requirement with a longer buffer period is usually followed, so as to alleviate the refinancing pressure confronted by domestic banks now to a larger extent. With such worries being eliminated, it is well-founded that the market believes that the banking shares will have more active and sturdy performance.