China banks to issue subordinated bonds on financing pressure

Bank of Beijing, China Minsheng, Agricultural Bank of China (ABC) and the Industrial Bank issued bonds to supplement capital adequacy ratio.

The Bank of Beijing issued RMB3.5 bln ($531.72 million) 15-year subordinated bonds on January 14, while many domestic banks including the Agricultural Bank of China (ABC) and the Industrial Bank also planned to issue subordinated bonds to refinance.

It was reported that China’s banking sector achieved the largest financing throughout history in 2010. Of the 16 listed commercial banks, 14 completed refinancing raising over 341.3 billion yuan ($51.85 billion).

Besides the Bank of Beijing, many domestic banks issued subordinated bonds to refinance, including China Minsheng Banking Corp (CMSB), Agricultural Bank of China (ABC) and the Industrial Bank.

The subordinated debt financing scales of the Industrial Bank and Agricultural Bank of China (ABC) had reached RMB15bln ($2.27 billion) and RMB50bln ($7.6 billion) in 2010.

After big financing in 2010, many domestic banks still suffered deep pressure on capital adequacy ratio due to soaring credit and tightening monetary policy. It was the choice of most banks to issue subordinated bonds to supplement capital adequacy ratio.

In order to reduce the effects on stock market, banks may choose bond issue to refinance. They might prefer convertibles to subordinated bonds as convertibles are with lower coupon rate and can supplement core capital after converted into stocks.

View the full story in Trading Markets.