CITIC Bank planning $3.8b rights offer

Updated: 2010-08-12 13:57
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China CITIC Bank Corp, the banking unit of China's largest investment firm, said it plans to raise as much as 26 billion yuan ($3.8 billion) in a rights offer to strengthen capital and support growth.

The bank will offer up to 2.2 shares for every 10 held, for a total of as many as 8.59 billion shares in Shanghai and Hong Kong, according to a company filing to the Hong Kong stock exchange yesterday.

Chinese lenders including CITIC Bank have announced plans to raise more than $84 billion from equity since the beginning of the year after a lending spree in 2009 to spur an economic rebound from the global financial crisis drained their capital. China Everbright Bank Co said on Wednesday it raised $2.8 billion in the nation's second-largest initial public offering this year.

"Given CITIC's lower returns, the bank has not been able to generate sufficient capital organically to fund its balance- sheet growth in recent years," UBS AG analysts led by Sarah Wu wrote in a note on Thursday. The rights offer will raise the lender's capital adequacy ratio by 180 basis points, they estimated.

CITIC Bank, the nation's seventh-largest lender by market value, had a capital adequacy ratio of 10.95 percent as of June 30, above the 10 percent minimum required of medium-sized lenders by the nation's banking regulator.

Profit Jump

Beijing-based CITIC Bank on Wednesay posted a 45 percent jump in first-half profit to 10.7 billion yuan as renewed economic growth boosted demand for loans and fee-based services. The result was 22 percent ahead of the 8.8 billion yuan average of three analyst estimates compiled by Bloomberg.

"The market evidently underestimated the earnings potential of CITIC and we expect significant upgrades to drive a re-rating," JPMorgan Chase & Co analysts led by Samuel Chen said in a note. They expect the bank to complete the rights offer in the first quarter of next year.

CITIC Bank shares dropped 3.44 percent in Hong Kong to HK$5.06 (65 cents) as of 11:05 am on concern of dilution following the rights offer. That extended this year's decline to 24 percent. In Shanghai, the stock fell 1.2 percent to 5.67 yuan.

The lender, controlled by China CITIC Group and part-owned by Banco Bilbao Vizcaya Argentaria SA, joins rivals including China Minsheng Banking Corp and Huaxia Bank Co in reporting first-half profit growth as the nation's economy expanded 11.1 percent. Domestic banks face rising credit risks as expansion may slow in the second half, Standard & Poor's said last month.

New Loans

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Chinese banks, most of which are state-controlled, extended 4.6 trillion yuan of new loans in the first half, more than a third less than in the year-earlier period, as the government curbed lending to prevent asset bubbles and limit non-performing debts.

In the latest move, the China Banking Regulatory Commission ordered banks to transfer off-balance sheet loans onto their books and make provisions for those that may default, three people with knowledge of the matter said this week.

CITIC Bank advanced 127.2 billion yuan of new loans in the first half, taking the outstanding amount to 1.19 trillion yuan, according yesterday's earnings statement. Soured debt accounted for 0.81 percent of its total advances as of June 30, down from 0.84 percent three months earlier.

The rights offer is subject to shareholder and regulatory approval, CITIC Bank said.