China Construction Bank (CCB), one of
the country’s four largest state-owned commercial banks, announced
yesterday that it would set up a joint stock company next week to
prepare for an initial public offering.
The bank, which won a US$22.5 billion bailout from the central
government in late December, was chosen as a pilot for the
country’s banking reform.
CCB received government approval in June to split into the China
Construction Bank Group and the China Construction Bank
Corporation, a joint stock listing vehicle.
The joint stock company will operate the bank’s commercial
banking business, including its domestic and foreign currency
deposits, loans, bank cards and clearance.
Business names, trademarks, Internet domain names and service
call numbers of the China Construction Bank and its branches will
remain unchanged.
The joint stock firm, with a registered capital of 194.2 billion
yuan (US$23.4 billion), has five founding shareholders.
Central Huijin Investment Co. holds an 85.2 percent stake, while
Baosteel Iron and Steel Co. Ltd., China’s top steel maker, and
electricity giant State Grid Corp. each hold 1.6 percent. Yangtze
Power, which operates the massive Three Gorges project, has a 1.0
percent shareholding. China Construction Bank Investment Co. Ltd.,
which is wholly owned by Central Huijin Investment, holds the
rest.
The joint stock company will seek foreign corporate investors as
equity owners in order to increase capital strength, optimize
capital structure and diversify ownership.
CCB President Zhang Enzhao has said that the bank’s goal is to
establish a modern shareholding commercial bank that will be a
competitive heavyweight in the global financial market.
All Chinese commercial banks are looking for ways to sharpen
their competitive edge before foreign banks begin entering the
Chinese market without restrictions, which will take place by the
end of 2006 in accordance with China’s WTO commitments.
Non-performing loans and historical financial burdens will have
to be shed while capital adequacy ratios are raised.
The country’s commercial bank law requires capital adequacy
ratios to reach 8 percent, the minimum required by the Basel
Capital Accord.
As of the end of June, CCB’s non-performing assets had shrunk
5.7 percentage points from the first quarter of this year to reach
3.1 percent.
To shore up the bank’s capital base, CCB plans to issue up to 40
billion yuan (US$4.8 billion) worth of subordinated bonds. The
bonds rank below other liabilities in terms of claims on bank
assets.
It conducted its first sale of subordinated bonds in July,
issuing 15 billion yuan (US$1.8 billion) and selling 50 percent
more than forecast.
On Friday, CCB will issue another 8 billion yuan (US$963
million) in 10-year bonds, with an option to expand the total to 10
billion yuan (US$1.2 billion).
Industry experts say that an issue of subordinated debt is an
effective way for banks to increase capital adequacy.
With the issuance of all the planned bonds, CCB’s capital
adequacy ratio is expected to top 8 percent.
Last month, the Bank of
China became China’s first commercial bank to reorganize as a
joint stock company, following its establishment of the Bank of
China Limited. The new company, which has registered capital of
186.4 billion yuan (US$22.5 billion), took control of all Bank of
China’s assets, debts, employees and business.
(China Daily September 16, 2004)