The Bank of China yesterday said it plans to issue 40 billion yuan (US$5.9 billion) worth of bonds convertible into yuan-backed A shares, leading its rivals in a fundraising spree to replenish capital.

The Beijing-based lender is set to start subscriptions for the bonds tomorrow and existing shareholders will have priority to purchase the debt, it said in a statement to the Shanghai Stock Exchange.

"The bond issuance underscores the urgency for the bank to shore up capital," said Wang Changjun, an analyst with Essence Securities Co. "But we believe the banking industry will grow more slowly and so the bond's valuation may be lower than the historical average."

The bank's move came after several of its rivals announced mega-sized fundraising proposals as financial authorities demanded an improvement in the capital adequacy ratio, a measure of a bank's strength, after a lending frenzy last year. The bank's CAR stood at 11.09 percent on March 31, down from 11.14 percent at the end of last year.

More than a dozen Chinese banks are set to raise more than US$60 billion in the next few months, including the Agricultural Bank of China which will launch a US$30 billion initial public offering as early as July.

The Industrial and Commercial Bank of China has proposed an additional equity sale worth US$7 billion to US$10 billion while China Construction Bank announced a plan earlier in May to net up to US$11 billion in a rights issue. But there have been media reports saying that CCB may delay its move to early next year due to market uncertainties.

Smaller lenders, including the Bank of Communications, China Merchants Bank, Shenzhen Development Bank and Huaxia Bank, have also unveiled fundraising proposals, mostly right offerings and private placements.

BOC said the debt will be convertible into its Shanghai-listed shares six months after the completion of the issuance at 4.02 yuan per share. The bank's shares in Shanghai gained 2 percent to 4.09 yuan yesterday.

Due to a proposed 2009 dividend payment of 0.14 yuan per share on Thursday, the conversion price for the bonds will become 3.88 yuan per share from that date, the bank said.

"Issuing convertible bonds could attract more long-term investors and ease the impact on the liquidity in the near term," said Liu Yu, an Orient Securities Co trader. "But the domestic market doesn't look strong enough to digest all these stock sales."