China Construction Bank, one of the country's four largest State-owned banks preparing for initial public offerings (IPO) next year, will issue up to 16.7 billion yuan (US$2 billion) in subordinated debt on December 21-22.
The bank plans to issue 10 billion yuan (US$1.2 billion) in 10-year bonds. But it reserved the option to expand that to 16.7 billion yuan (US$2 billion), depending on investor demand, the bank said at a statement.
This will be the third sale of such debt by the bank to replenish its capital base ahead of the planned IPO.
The bank issued 23.3 billion yuan (US$2.8 billion) in subordinated bonds in the first two sales of such bonds in July and September. The bonds rank after other bank liabilities in terms of claims on bank assets.
The bank did not say how much the new bond issuance will contribute to the bank's capital adequacy ratio, a measure of how much capital it has relative to assets.
It said in an earlier report that its capital adequacy ratio reached 9.39 per cent at the end of September.
Aiming to further increase capital strength, optimize capital structure and diversify ownership, the bank is also planning to usher in foreign company investors as its equity owners.
Chang Zhenming, president of China Construction Bank, said at a press conference last month that his bank was in talks with two or three potential strategic investors.
The strategic investors should be well-known internationally and have rich experience, he said.
"Their contributions to management and experience are vital for us," he said.
The bank, which won a US$22.5 billion bail-out from the government in late December, was chosen by the central government as a pilot project to turn it into a joint stock bank.
It established a joint stock listing vehicle in September, following the split of the institution into two.
During the first nine months of this year, the bank earned 49.9 billion yuan (US$6.0 billion) in profits before setting aside provisions for bad loans.
The profits represented an increase of 8.8 billion yuan (US$1.1 billion) or 21.5 per cent compared with the same period a year ago.
Economists said this suggests the profit capability of the bank remains strong.
Niu Li, a senior economist with the State Information Centre, said domestic banks need to further increase their profit capability.
Chinese commercial banks would have to sharpen their competitive edge before foreign banks can enter the Chinese market without restrictions before the end of 2006, he told China Daily.
