Industrial Bank (IB) announced that it received the “Reply on Approving Industrial Bank Co., Ltd. to Issue Non-open Stocks” (No. [2012] 1750 of CSRC) given by China Securities Regulatory Commission (CSRC) on December 31, 2012, in which, the commission approved the company to issue not more than 1.915 billion new shares. According to previous announcements, 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 Zhengyang International Trade Co., Ltd., to raise a total of funds about RMB 24 billion.
Reasonable capital supplementation structure alleviates the financing pressure in the future. Since its IPO, IB has explored completing the mechanisms for capital allocation and capital restriction in a sustained manner. Meanwhile, it has laid stress on supplementing capital in multiple ways and advocated arranging equity financing in a reliable way and making innovation in banking capital tools actively based on accumulation of internal source based capital. For instance, IB is the first bank that has supplemented its capital depending on issuing subordinated debts and hybrid capital debts in the banking industry. Among the capital of RMB 135 billion supplemented by IB since its IPO, for instance, the amount supplemented depending on profit accumulation hits about RMB 75 billion, that supplemented by way of IPO and rationed shares hits about RMB 33 billion, and that supplemented by issuing subordinated debts and hybrid capital debts hits about RMB 27 billion, accounting for 56%, 24% and 20% of the total supplemented capital respectively. The capital raised with this non-open issuance will basically meet the demand of IB for core capital in the coming two years.
In the future, with the regulatory policies for banking capital in China becoming more practical and closer to the national situation, the pressure of banking equity financing will be reduced significantly. The China Banking Regulatory Commission (CBRC) has promulgated the new Measures on the Administration of Capital of Commercial Banks (Interim) . Based on Basel Accord III, the new version adopts provisions that are more suitable to the national situation of China. For instance, the time for reaching the regulatory requirements is postponed from the end of 2016 to the end of 2018, and specific time points for reaching the regulatory requirements may set on a yearly basis to provide a buffer period for commercial banks. Meanwhile, the CBRC has also encouraged commercial banks to issue innovative debt tools that can be counted into Tier 1 capital. As estimated by professional institutions, it is hopeful to alleviate the pressure of listed banks for equity financing up to hundreds of billions RMB in the coming two or three years. Therefore, these provisions and measures have substantially relieved the pressure of commercial banks to conduct equity financing from the capital market. On the other hand, we put more stress on the transformation of economic development model and quality of economic development and will do so in the “12 th Five-year Planning” period and coming ten years, and the speed of economic development will be adjusted correspondingly. In this way, the demand of real economy for credit is reduced substantially, so is the pressure of banking capital expansion.
Showcasing the confidence of the state-owned business sector, the program is beneficial to the development of the capital market. The non-open issuance program of IB attains two objectives with a single move. The investors locked currently are all large-sized SOEs, which are outstanding representatives in their respective industries, and they share considerable correspondence or consistency with IB in the aspects of subscription strength, qualifications of shareholders, business cooperation, and value identification. To introduce these outstanding strategic investors, not only is it helpful to improve the corporate governance level and bring new vigor to the development of the bank, but to attract the external funds to come into the market by issuing tailored additional shares is also beneficial to inject new funds for the capital market, enlarge the market scale, diversify the investment subjects and boost the development of the capital market.
As a mainstream listed company that carries out standard operation, boasts prominent benefits and stresses sustainable development, IB has attracted five investors to buy its shares, which have promised a lock-up period of at least three years. The investment achieved with the driving efforts of both management teams and the active support of major shareholders of both parties showcases the high recognition of external funds to the banking investment value. In particular, with PICC, PICC Property and Casualty and PICC Life Insurance becoming the shareholders of IB, it represents the recognition of the outstanding state-owned business sector with great strength to the long-term investment value of blue chip shares represented by banking shares, establishing a model for value investment. Moreover, compared with open additional shares and rationed shares, this issuance has its issuing targets selected in advance and will not “draw blood” from the capital market. With the issuance of tailored additional shares, IB will improve its capital sufficiency and thus, increase its credit support to the real economy, benefiting the future development of the capital market in an indirect way.
Prominent banking investment value brings growth, incomes and returns. For five years after its IPO, IB has made considerable progress in terms of both hard indexes, such as business, finance, and asset quality, and soft indexes, such as risk control and corporate governance. Specifically, it has witnessed fast growth in various businesses and constant increase in capital scale. The bank's total assets increased to nearly RMB 2.96 trillion at the end of this third quarter from RMB 617.5 billion at the beginning of 2007, rising 3.8 times, and the equity of shareholders grew to RMB 137.9 billion at the end of this third quarter from RMB 16.2 billion at the beginning of 2007, rising 7.5 times. The profitability of the bank has kept growing vigorously. In the past more than five years, the bank registered a total of pre-tax profits up to RMB 134.9 billion and after-tax profits RMB 103.6 billion. The net profits in the first three quarters of this year increased six times over the total profits of 2006 before the IPO. Since its IPO, the bank has kept its yield of net assets around 25% each year, and the annual rate even hits 27% in this year, keeping a leading position among listed banks. With prudent and effective risk management, the bank has reduced its non-performing loan ratio from1.53% at the beginning of 2007 to 0.45% at the end of this third quarter, and increased its provision coverage from 126% at the beginning of 2007 to 431% at the end of this quarter, further reinforcing its resistance to risks. According to the Ranking of Global Top 1000 Banks 2012 released by the British Magazine, The Banker , Industrial Bank (IB) kept moving up at a fast rate, ranking No. 69 around the world in terms of Tier 1 capital, up by 14 places over the last year; and ranking No. 61 in terms of total assets, up by 14 places over the last year. The most important guarantee for IB to attract investors is its leading business operation level and growing business performance.
Based on the sturdy growth of scale and benefits, IB has given reasonable investment returns to its shareholders. After its IPO, IB immediately set out specific profit distribution policies in its articles of incorporation, and implemented such policies in an active manner. Over the more than five years after its IPO, the total cash dividends paid by IB hit RMB 13.1 billion, accounting for 21% of the total distributable profits available to investors in the five years. The mean proportion of cash dividends to the annual weighted net assets is 4.40%, 140 base points higher than the legal interest rate for the current one-year fixed deposit. The total cash dividends in the latest three years account for as high as 48.41% of the annual mean net profits belonging to the shareholders of the parent company in the same period. Recently, IB further defined and refined its profit distribution procedures and policies, and formulated the planning of cash dividends for the coming three years at the same time, which prescribes that the proportion of dividends distributed in cash each year would not be less than 20%. Moreover, the bank will gradually increase and maintain the proportion at a reasonable level on the original basis considering the actual situation each year.
Guided by the corporate governance philosophy of sustainable development, IB has kept improving its corporate governance mechanism and actively exploring different ways to perform corporate social responsibilities. As the first “Equator bank” in China, IB has actively extended its green finance services in depth, not only ensuring the concerted and sustainable development of all businesses in an all-round way, but also boosting the harmonious development of economy, society and environment. By the end of 2012, IB has accumulatively provided “green finance” based financing loans of nearly RMB 200 billion to around 1,000 enterprises with a variety of financial tools. All the projects supported by such loans may reduce the emission of 66.18 million tons of carbon dioxide, which is equivalent to shutting off 151 thermal power plants of 100 MW or stopping running 100,000 taxis for 32 years.
In recent years, IB has received good comments from all social circles and won many honors with its good corporate governance mechanism and sustainable business operation model. Specifically, the bank won the Board of Directors Award at the “10 th Chinese Corporate Governance Forum” sponsored by Shanghai Stock Exchange (SSE) in 2011, and then in the next year, it won the Board of Directors Award again at the “11 th Chinese Corporate Governance Forum” sponsored by SSE. In addition, IB has sturdy, excellent, professional, and market-oriented operation and management teams. In its board of directors and board of supervisors, there are both senior experts from domestic and oversea financial institutions and authoritative scholars from universities and research institutes. The executive team is rooted in IB and has over 20 years of working experience in commercial banks on average. The team has a stable structure and clear echelon, with a sturdy, flexible and market-oriented operation style.
From the approval of CSRC to receiving the issuance reply, the share price at the secondary market of IB witnessed an active and desirable tendency. By the closing on the afternoon of December 31, 2012, the closing price of IB hit RMB 16.69 per share, rising 32.88% compared with the closing price of RMB 12.56 per share on the day when CSRC announced its approval (November 29), an increase obviously higher than that of 23.68% of A-share listed banks and that of 15.57% of SSE Composite Index in the same period.