Bank of China to issue new bonds
Bank of China, the country's largest foreign exchange bank, said Tuesday it would issue subordinated debt worth 10 billion yuan (US$1.2 billion) to replenish its capital base ahead of a planned initial public offering next year.
Spokesman Wang Zhaowen said the 10-year bonds with fixed interest rate would be issued on the interbank market in the near term.
"It will be the first issuance of such bonds on the country's capital market," Wang said.
The offering is just part of up to 60 billion yuan (US$7.2 billion) the bank plans to raise before the planned listing.
Dong Chen, a senior analyst with China Securities, said the bank needs to issue subordinated debts for its future expansion.
China's State-owned banks will have to sharpen their competitive edge before foreign banks can enter the Chinese market without restrictions before 2006.
Besides the Bank of China, China Construction Bank may also issue such debts. The bonds rank after other bank liabilities in terms of claims on bank assets.
"They will have to lower the rate of non-performing loans, get rid of historical financial burdens and raise their capital adequacy to international standards," he said.
The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 per cent, the minimum required by the Basel Capital Accord reached by international banking managers.
"This means China's commercial banks, especially the State-owned banks, will have to achieve the goal before they get listed," Dong said.
Earlier this year, Wang said Bank of China also has a plan to invite company investors to take a stake in its initial public offering.
"We are still in talks with the potential investors about the sale," he said.
The strategic investors should be able to bring in advanced management experiences and improve the bank's corporate governance, he said.
Bank of China and China Construction Bank, which won a US$45 billion bail-out from the government in late December, were chosen by the central government as a pilot project to turn them into joint stock banks.
"Work on Bank of China's share-holding reform goes smoothly so far this year," Wang said.
But the bank has not yet made a decision on where it would get listed.
The bank is busy reshuffling its business, organization structure, management procedure, information technology and human resources.
The focus of the restructuring is to make the bank's service more market-oriented and customer-centred, he said.
Bank of China's first quarter operating profit reached 17.4 billion yuan (US$2.1 billion), earlier figures indicate.
The profit represented an increase of 3.8 billion yuan (US$457 million) or 28 per cent compared with the same period of last year.
Last year, the bank earned 57 billion yuan (US$6.9 billion) in operating profit before setting aside provisions for bad assets. The profit represented an increase of 4.8 billion yuan (US$573.4 million) or 9.11 per cent compared with 2002.
By the end of March, the bank's outstanding amount of non-performing credit stood at 342.4 billion yuan (US$41.3 billion), a drop of 9.4 billion yuan (US$1.1 billion) from the end of last year.
By then, the bank's non-performing credit ratio was 14.84 per cent, a drop of 1.44 percentage points.