Date: January 4, 2013 Source: Shanghai Securities News
The recovering market makes refinancing accessible to banks. Following Bank of Communications, Industrial Bank (IB) received the approval of China Securities Regulatory Commission (CSRC) to its program of issuing tailored additional A-shares worth RMB 24 billion at the last day of 2012. Upon the interview of our reporter, Tang Bin, board secretary of IB, said that IB had planed to implement the financing program quickly. Analysts believe that the launch of refinancing program only has a limited pressure to the banking shares.
Caring the market, tailored additional shares are easier to issue
The significant rise of banking share price at the end of last year built a solid base for IB to implement the refinancing program smoothly. From the beginning of December 2012 to the closing at the year-end, the China Securities Index for mainland banks went up significantly over 20%, and SSE index rose 14% in the same period. Banking shares outperformed the large-capitalization stock by a large margin. Specifically, the A-share prices of IB, China Minsheng Banking Corporation (CMBC) and China Merchants Bank (CMB) went up 33.8%, 27% and 38.75 respectively in the same period.
The above three listed banks had all announced their refinancing programs before, all of which had been approved by the Issuance Examination Committee of CSRC but waiting for the final approval. To be specific, IB planned to issue tailored additional shares to raise about RMB 24 billion, CMBC planned to issue A-share convertible bonds not more than RMB 20 billion, and CMB planned to make A+H rationed shares for financing RMB 35 billion.
As believed in some analyses, the reason that the refinancing program of IB was first approved lies in that the tailored additional shares would be issued by the bank to specific objects to attract external or incremental capital into the market mostly, and thus the market bear little shunting pressure. Comparatively speaking, rationed shares or convertible bonds, to a greater extent, involve investment conversion of existing funds, and more consideration should be given to the market situation. Therefore, CMB and CMBC encountered more twists and turns in their refinancing. In particular, the refinancing program of CMB was approved by the Issuance Examination Committee of CSRC in last April, but because the approval was not given yet, CMB had to extend the effective period of its refinancing program by 12 months.
All refinancing methods that were implemented successfully by A-share banks were tailored additional shares, including the tailored additional shares, worth RMB 11.8 billion, issued by the Bank of Beijing in the first quarter of last year, and the tailored additional A-shares for financing issued by Bank of Communications in the last August. Under the market situation in the previous year, the preference for the model of issuing tailored additional shares for refinancing by banks showcased the special care of the regulatory authorities to the market.
Some insiders indicate that the method of tailored additional shares based financing is also in agreement with the requirement provided in the Basel Accord that the largest shareholders of a bank should assume more responsibilities for its capital supplementation, and tailored additional shares may become a refinancing method encouraged more by the regulatory authorities in the future.
In the interview with our reporter, Tang Bin, Board Secretary of IB, said that the bank would implement the program of issuing tailored additional shares soon. The offering price of tailored additional shares set by IB before was RMB 12.36 per share, and by the closing of December 31, the share price of the bank was RMB 16.69 per share. Hence, PICC, PICC Property and Casualty and PICC Life Insurance, China National Tobacco Corporation, and Shanghai Zhengyang International Trade Co., Ltd. could have more than 35% float profits upon their subscription of the tailored additional shares.
Limited pressure for banking shares
It is reported that after the approval of IB's refinancing program, the refinancing of CMBC and CMB would also be put on agenda. Considering the possible influence to the market, however, it is anticipated that the regulatory authorities will decide the schedule to give approval to the refinancing programs of other banks based on the market response. Nonetheless, an analyst believes that there will be only limited market pressure even if the refinancing programs of banks are approved at a high frequency.
The analyst believes that one important reason that the banking shares went up significantly in the latest month is the previous big drop. At present, although the rise is far higher than the stock index, the evaluation still remains low. Even if refinancing brings adjustment pressure, it is very hard for the banking shares to return the previous low point.
With all economic data indicating economic stability, the market will gain confidence to the prospect of real economy, so the profits of listed banks may outperform the market expectation. In the first three quarters of last year, listed banks, joint-stock banks in particular, registered good performance, with an average increase of net profits exceeding 30%. Specifically, the net profits of IB increased 40% YoY. It is anticipated that the performance of joint-stock banks could maintain the growth level in the first three quarters across 2012.
Additionally, worries about future asset quality and refinancing pressure of banks are alleviated in the market now, and such worries were important factors suppressing the banking shares from growing previously. The continuous growth of banking shares recently could be regarded as amendment to the previous anticipation.
The latest measures on the administration of capital released by the CBRC adopt provisions that are more suitable to the national situation of China based on Basel Accord III. With regard to the period for reaching a given standard, for instance, the regulatory requirement with a longer buffer period is generally followed. Meanwhile, banks are encouraged to make innovation in capital tools, which is helpful to relieve the pressure of banks in seeking equity financing in the future.
In the program of IB for issuing tailored additional shares worth RMB 24 billion, the three companies under PICC subscribe about RMB 17.6 billion and China National Tobacco Corporation subscribes about RMB 5 billion. Both of them are of the background of “state-owned business”. As believed in some analyses, this can be regarded as the recognition of the “state-owned business sector” to the long-term prospect and investment value of blue chip shares like banking shares. The objects of tailored additional shared issued by the Bank of Communications previously also saw “state-owned business” such as the Ministry of Finance and Social Security Fund.