Balance Rights, Integrate Resources and Promote Sustainability

-The Board of Directors of Industrial Bank Approved the Plan for Offering of Preferred Shares

On June 6, 2014, the Board of Directors of Industrial Bank (IB) approved the offering of preferred shares worth not more than RMB 30 billion within China. The bank plans to offer such preferred shares to not more than 200 qualified investors in a non-open way, of which the largest shareholder of the bank, Fujian Provincial Department of Finance, plans to subscribe RMB 2.5 billion.

In 1988, IB offered preferred shares early upon the initiation of the bank in the joint-stock form. At this time, IB makes reasonable supplementation to Tier 1 capital timely by offering preferred shares. This is not only helpful to improve its existing capital structure, reduce financing cost, reinforce the customer foundation, and meet capital regulatory requirement, but also means the resumption and selection of shareholders rights. In the meantime, it can provide investors with diversified investment channels, balance the rights of various types of shareholders in a better way, and promote the sustainable and sound development of the bank.

Good long-term investment value based on steady, sound and coordinated development of businesses

In recent years, all businesses of IB have kept a tendency of steady, sound and coordinated development. With asset scale and profitability rising quickly, the bank registered the total assets of RMB 3.68 trillion at the end of 2013 and the net profits attributable to the parent company realized across 2013 hit RMB 41.211 billion, both increasing more than 300% over the figures in the year of IPO. The rate of return to shareholders of ordinary shares was kept at a first-class level, and the annual mean ROE hit 24.58% in the latest 5 years. As the bank boasts good asset quality and strong risk resistance, at the end of 2013 its non-performing loan ratio was 0.76%, provision coverage 352.10% and LLR/loan ratio 2.68%, all remaining at a good level in the industry. At the end of 2013, IB ranked No. 8 among all banks in China in terms of total assets, and made its presence in the top 50 banks. The leading business level and performance leading the industry are important guarantees for the long-term good investment value of IB.

What’s noteworthy is that, as the largest shareholder of the bank, Fujian Provincial Department of Finance, which bears the responsibility to make constant capital injection, has signed a subscription agreement with IB before the meeting of board of directors, locking the subscription scale and accepting the dividend yield ratio decided in the follow-up offering inquiry. This reflects that the largest shareholder thinks high of the long-term development of IB and gives high recognition to the investment value of preferred shares. 

Active capital management to improve the future development momentum 

IB established the concept of active capital management quite early, in which all capital indexes can be ensured to meet the regulatory requirements by way of active management means. IB has also always laid great stress on making reasonable supplementation by combining the means of internal accumulation and external multi-channel financing methods. After the IPO in 2007, the bank has effectively improved the capital sufficiency of each level by way of subordinated debt investment, rationed shares and tailored additional shares, maintaining the desired market image in banks with sufficient capital.

Reasonable design of offering plan to balance interests of various shareholders 

The main clauses of offering plan were all set down in accordance with relevant provisions including the Measures on the Administration of Capital of Commercial Banks (Interim) enacted by the CBRC and the Preferred Share Pilot Administrative Measures of the CSRC, and in the meantime, considerations were also given to interests of shareholders of ordinary shares and preferred shares.

Interests of shareholders of ordinary shares were fully taken into account in the design of clauses of this offering, covering compulsory conversion price and redeeming clauses, etc. Meanwhile, IB stated clearly that there would be no other financing plan for ordinary shares in the coming 12 months apart from this offering plan. While taking into full consideration the influence of market-oriented interest rates to its profits, IB still continued its commitment on dividends in the past three years and promised that the cash dividends to shareholders of ordinary shares each year in the coming three years (2014-2016) would not be lower than 20%.

Both interests of the issuer and investors were fully taken into account in the principle for determining the dividend yield ratio in the plan for offering preferred shares, which specifies that each five years constitutes an interest period, and the dividend yield ratio for each interest period is the same. This is favorable for the issuer and investors to prevent risks of fluctuation in market interests. Though the clauses regarding capital attributes such as compulsory conversion and non-accumulation of dividends were set down according to regulatory requirements, banking is an industry under strict supervision. The current regulatory standard enforced by the CBRC is higher than the international standard. Furthermore, as an enterprise involving in credit operation, a bank will not have any behavior harming its own business reputation under the circumstance of normal operation. On that basis, the market universally believes that the probability for the large- and medium-sized banks in China to encounter compulsory conversion and failure in paying dividends is extremely low, and preferred shareholders will enjoy a higher safety margin.