Date: January 4, 2013 Source: Securities Daily
Upon the New Year of A-share market, Industrial Bank (IB) finally received the official reply on its tailored additional shares. The reply means that its “New Year Film” on tailored additional shares has drawn to a close, approaching the happy ending. For the A-share market, the feel-good factors brought by the successful issuance of tailored additional shares by IB to the secondary market are more important than the issuance per se. Not only can the A-share market bear the refinancing of banks which used to be regarded as dangerous as a tiger, an analyst indicates, but also give very positive response. This just showcases the internal reform of A-share market.
The program of IB for issuing tailored additional shares takes a month from being examined and approved by the Issuance Examination Committee on November 29 to receiving the official reply. During the period, SSE Composite Index has ever dropped to 1949.46 and then rose to 2300. It is not exaggerative to say that A-share market had a heart-quaking performance in fighting back. On December 31, 2012, SSE Composite Index closed at 2269.13 points, finishing the recovery of 300 points from the bottom. A-share became the stock market with the greatest rise of about 15% among all major economies around the world since the beginning of December.
This round of rocketing rise of A-share market is not for no reason. It should be mentioned that positive energy has been accumulated from all circles for a period. Specifically, the greatest power comes from the 18 th CPC National Congress.
It was clearly set out in the Report of the 18 th CPC National Congress to “deepen the reform of financial system, intensify financial supervision, drive financial innovation, and maintain financial stability”. In implementing the spirit of the 18 th CPC National Congress in depth, China Securities Regulatory Commission (CSRC) enacted many policies in succession to continue pushing forward the reform and innovation of the Chinese capital market, specifying the development orientation of the capital market, transmitting a great deal of positive information (with a wide coverage, e.g. deepening the reform of issuance system, intensifying the construction of legal system, strengthening corporate governance, introducing overseas mature investors, developing multi-tiered capital market, and punishing illegal and criminal acts strictly), and thus building the confidence of investors in the A-share market successfully. The confidence of investors could be sensed from the fast growing trade volume in the secondary market in the latest month. In December, the daily mean trading volume in both Shanghai and Shenzhen A-share markets rocketed to RMB 151.9 billion from RMB 80 billion in November, an increase of nearly 90%. The latest weekly report released by China Securities Depository and Clearing Corporation Limited indicates that the number of newly-opened accounts increased significantly week over week, creating a new high in the past 11 weeks. This indicates that external investors are showing increasing enthusiasm in coming into market.
Apart from market confidence, what A-share lacked in the past also included funds. This is also an important reason that A-share market holds repulsion to refinancing by the light of nature. Yet, IB chose the “reversed operation”–“transfusing blood” to the capital market, an operation model providing a second power source for the vigorous growth of A-share market.
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, with a lock-up period of three years at least. The accomplished refinancing program of the Bank of Communications was also implemented by issuing tailored additional shares, and the selected issuing targets were also specific investors, including the Ministry of Finance, Social Security Fund, and Pingan Asset Management, etc. In terms of fund source, these are all external incremental capital. Moreover, the background of “state-owned business” behind the incremental capital showcases the recognition of the “state-owned business sector” to the long-term prospect and investment value of blue chip shares represented by banking shares. As pointed out by Tang Bin, Board Secretary of IB, this refinancing model adopted by IB and the Bank of Communications can not only meet the development requirements of banks themselves, but also be helpful to maintain the stability of market, providing new ideas and reference to the market.
In the opinion of analysts, if there is an appraisal on the industries with the greatest “blue chip style” in 2012, the banking industry should, no doubt, rank No.1 among all listed companies of all industries. Moreover, the “blue chip style” of the banking industry can not only be contributed to its big weight, but also its business performance supporting nearly half of the 2,500 listed companies. In “transfusing blood” instead of “drawing blood” by refinancing, the banking shares have got the consistent support of large shareholders (including the capital of “state-owned businesses” like Central Huijin Investment, capital of private enterprises represented by Shi yuzhu, and overseas capital represented by QFII). It should be mentioned that the banking shares showcase the “responsibilities for the stock market” that the blue chip should assume in a multidimensional way.
Because the banking shares assume their “responsibilities for the stock market” boldly, they become a non-disputable “rapid vanguard” in this round of growth of A-share market. Of course, tamped basic areas are required to support the banking industry to do so. Owing to the “anticipation-oriented” characteristic of the capital market, the uncertainty that the banking industry faces regarding their future development under the heavy pressure of capital demand became a lion in the way for the industry to recover its evaluation for a time. In this regard, the new capital regulatory regulations issued by the CBRC alleviated the capital pressure of the banking industry and drove the strong evaluation regression, which becomes the third power source for the great growth of A-share market.
The 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, 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. Meanwhile, the CBRC also encouraged commercial banks to issue innovative capital tools in order to meet the regulatory requirements and reduce the demands for supplementing capital directly through stock financing. 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, in the perspective of supporting the real economy, China will attach more importance to control of economic development during the “12 th Five-year Planning” period and the future ten years, so the speed of economic development will slow down, and the growth of bank credit will decelerate, too. Substantially, the requirements for banking capital will also go down.
In addition, the real estate loans and local financing platform loans extended by the banking industry which have drawn great attention from the market have not seen serious drop in their asset quality, and have shown very low non-performing ratios. Meanwhile, all listed banks have high provision coverage, guaranteed asset quality and controllable risks. Considering the performance of the stock market in the latest month, the banking shares rose higher than the overall stock index, and mainstream capital showed great thirst for outstanding banking shares. Specifically, 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 the bank 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.
In fact, as for institutional investors, to participate in the refinancing of banks by way of subscribing tailored additional shares is indeed an investment method with relatively low risks and high returns. Let's take IB as an example. Its present stock price is RMB 4.33 higher than the price of tailored additional shares. With its subsidiaries subscribing a total of 1.38 billion shares, PICC may get nearly RMB 6 billion account float profits after the program of issuing tailored additional shares is completed. Moreover, the dividend yield ratio of listed banks is around 4% at present, so they can provide more stable “baseline” returns for risk assets. Specifically, the total cash dividends of IB 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.
As for the A-share market, the development potential and profitability of listed companies are always the focus of attention in the market while the improvement of corporate governance level is just the foundation for sustainable development. Analysts believe that the improved governance level of listed companies is the fourth power source contributing to this round of rocketing growth of A-shares.
Looking back, IB, who has just received the reply on its program of issuing tailored additional shares, has evolved its corporate governance objective from “maximizing the interests of shareholders” to “giving full consideration to the appeals of multi-parties”, establishing the governance concept of sustainable development. Recently, the “11th Chinese Corporate Governance Forum” sponsored by Shanghai Stock Exchange and China Association For Public Companies (CAPCO) and jointly supported by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and Organization for Economic Co-operation and Development (OECD) was held in Shanghai. Of the ten listed companies winning the 2012 Board of Directors Award, IB won the award again in this year after receiving the honor in 2011.
The Corporate Governance Expert Committee of SSE granted the award to IB for the reasons:“On the basis of winning the 2011 Board of Directors Award, the Board of Directors of IB continued furthering its corporate of governance construction, launched in-depth practice in the sustainable corporate governance concept, created the good atmosphere for scientific and democratic decision-making, improved the mechanism for corporate governance conduction and investigation and inspection, and fostered the homeland culture of IB characteristics.”
In fact, without the sustained improvement in corporate governance and other aspects, it's sure that the earnings indexes of IB, ROE for example, could hardly keep steady growth for a long period, and neither could the investors and regulatory authorities have such positive comments on its program of issuing tailored additional shares.