China Merchants Bank said yesterday it plans to issue up to 30 billion yuan (US$4.34 billion) of subordinated bonds as its biggest bonds sale to boost capital.
The move came on the heels of its planned acquisition of Hong Kong's Wing Lung Bank.
The Shenzhen-based bank plans to issue the bonds with a maturity of more than five years in domestic or overseas markets. If sold in overseas markets, the overseas bonds sales will be no more than 10 billion yuan, the country's sixth-biggest bank in terms of assets said yesterday in a filing to the Shanghai Stock Exchange.
The bonds will be issued to institutional investors in China's inter-bank bond market in the Chinese mainland sales.
In the event of bankruptcy, subordinated debt holders receive payment only after senior debt claims are paid in full.
The bank will hold a shareholders' meeting on June 27 to gain approval on the bonds sale and its acquisition on Wing Lung Bank. The moves are also subject to the go-ahead from Chinese financial regulators. Merchants Bank said last week it would pay a combined HK$19.3 billion (US$2.47 billion) for 53.12-percent stake of Wing Lung.
The purchase price is equivalent to about 2.91 net book value of Wing Lung at the end of 2007. The acquisition should be completed in the third quarter.
Merchants Bank would then be required to make a general offer for all the issued Wing Lung shares, leading to a total cash consideration of 32.4 billion yuan for the whole deal.
Analysts said the deal would squeeze Merchants Bank's capital in the short term, though it is a positive move on Merchants Bank's long term expansion.
"In the short term, the acquisition may cut Merchants Bank's capital adequacy ratio, and the acquisition prices is somewhat overvalued," said Wu Yonggang, a Guotai Jun'an Securities Co analyst.
(Shanghai Daily June 13, 2008)
