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Wireless carrier China Telecom (HKEx: 728; NYSE: CHA) was in the headlines last week with its launch of a financial product similar to savings accounts, becoming the latest in a long string of companies to enter an area dominated for decades by state-run banks. At the same time, separate reports said the central bank was nearing a plan to introduce its first major regulation of these new products, in another widely expected move. Read Full Post…
The following press releases and media reports about Chinese companies were carried on March 6. To view a full article or story, click on the link next to the headline.
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The ongoing cash crunch at Chinese banks may be partly behind reports that a trio of regional banks are aiming to make IPOs in Hong Kong, with Bank of Shanghai, Huishang Bank and CGB all aiming to list in the second half of the year. These regional lenders may also be losing patience while waiting for China to lift a freeze on new IPOs that dates back to last year, which has led to a backlog of dozens of companies that want to make offerings. The China Securities Regulatory Commission (CSRC) had been giving signals that it could soon lift the freeze, though it may change its mind if the current sell-off on Chinese stock markets continues. Read Full Post…
After a flurry of capital raising in the beginning of the year, China’s banks have been silent over the last 6 months despite my previous predictions that 2012 would see a big flurry of money raising by these financially-challenged companies. But now that silence has abruptly ended with word that Bank of China (HKEx: 3988; Shanghai: 601988), one of the nation’s top 4 lenders, is preparing to raise about 23 billion yuan, or around $3.7 billion, through a subordinated bond offering. (English article) So now the question becomes: is this the beginning of a new flurry of fund-raising by China’s banks? The answer is a definite “probably”, though in this case we’ll probably simply see the banks that didn’t raise capital late last year or early this year engage in new fund raising.
The following press releases and media reports about Chinese companies were carried on July 25. To view a full article or story, click on the link next to the headline.
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The smoldering crisis quietly seeping through China’s financial services sector has infected the nation’s largest insurer, China Life (HKEx: 2628; Shanghai: 601628), which has announced plans to raise about $6 billion this year through the issue of subordinated debt, becoming the latest player to turn to financial markets to raise billions of dollars in new cash as provisions for shaky investments. (English article) The entry of China Life into the beggar’s cue is quite significant, as up until now the latest cash-raising frenzy has been confined mostly to big state-controlled banks that made questionable loans under a Beijing-ordered lending spree to stimulate the economy at the height of the global financial crisis. China Life’s biggest rival, Ping An Insurance (HKEx: 2318; Shanghai: 601318), also previously went to financial markets not once but twice last year, announcing plans to raise a total of more than $6 billion as well. (previous post) But unlike Ping An, which is considered a relatively aggressive investor, China Life is known for its conservative investment policies. As such, the fact that its investments are also running into trouble could be an early warning sign that the problems in China’s financial system run much deeper than industry and government officials realize or are admitting. Beijing has already made several moves to ease the burden on Chinese banks, including a potential plan to let them delay collecting repayment on many of the problematic infrastructure loans they made to local governments that may now be in danger of default. (previous post) China Life announced its fund-raising plan after reporting its quarterly profit slumped 86 percent in last year’s fourth quarter, its worst-ever decline. A 22 percent slump in China’s stock market last year certainly contributed to China Life’s woes, as the company invests up to 10 percent of its money in stocks. But I suspect that such a big profit decline, combined with big fund-raising plans, indicate that stocks alone weren’t responsible for the big downturn, and that many of China Life’s other investments also may be running into problems. The company joins a growing list of major financial institutions that have announced multibillion-dollar capital raising plans in the last half year, including Ping An, Bank of Communications (HKEx: 3328; Shanghai: 601328), China Merchants Bank (HKEx: 3968; Shanghai: 600036) and ICBC (HKEx: 1398; Shanghai: 601398). Minsheng Bank (HKEx: 1988; Shanghai: 600016), one of the nation’s most entrepreneurial lenders, announced its own intent to raise funds last month, and earlier this week gave final details for the $1.4 billion planned Hong Kong share sale. (English article) Look for more fund-raising plans this year, accompanied by significant asset write-downs at both the insurers and banks as the defaults start to swell. From an investor standpoint, unless you have a strong stomach I would say that stocks for these and other major financial institutions look like volatile bets for at least the next 1-2 years.
Bottom line: China Life’s new $6 billion capital raising plan indicates China’s building banking crisis may be worse than most people realize.
Related postings 相关文章:
◙ AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天
◙ Bocom Recapitalizes, Govt Pays the Bill 交行再融资或掀起新一轮银行再融资热潮
◙ More Banking Bad News From Minsheng 民生银行融资揭示银行业困境
The latest round of capital raising by major Chinese banks continues with the news that Bank of Communications (HKEx: 3328; Shanghai: 601328), the nation’s fifth biggest lender, has just recapitalized to the tune of $8.9 billion. But in a telling sign that investors have tired of this latest round of fund raising, the government has stepped in to pay most of the bill this time, setting a pattern for a growing number of bank recapitalizations likely to happen in the months ahead. In many ways, it’s only appropriate that Beijing help these banks bolster their finances, as the current weakness in their balance sheets is the direct result of their compliance with a government’s directive that saw them make record loans under a national economic stimulus package at the height of the global downturn in 2009 and 2010. In this latest development, BoCom has just raised a hefty $8.9 billion through a private placement with a group of buyers mostly linked to major state-owned entities, including the finance ministry, the national pension fund, and China’s state-owned tobacco monopoly. (English article) While ordinary shareholders won’t have to pay for this recapitalization directly, they will still pay indirectly through the dilution of their holdings in BoCom, which will issue millions of new shares as part of this private placement. BoCom is just the latest in a string of Chinese banks and other financial institutions to raise major new capital over the last year, as most race to strengthen their overextended balance sheets after the lending binge of 2009 and 2010. Many worry the banks’ finances could come under further pressure as many of the questionable loans made during that period end up defaulting, though the government is also taking steps to try to avoid that situation by allow banks to delay collection of repayment on many of those loans. (previous post) Other banks to announce big new fund-raising plans over the last year include Minsheng Bank (HKEx: 1988; Shanghai: 600016), which just last month announced plans to raise up to $1.6 billion, as well as leading lender ICBC (HKEx: 1398; Shanghai: 601398) and China Merchants Bank (HKEx: 3968; Shanghai: 60036). (previous post) Analysts previously said that BoCom was likely to need more money, and also mentioned Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) as another top bank that could need new capital in the near future. Any investors with a memory will recall that this latest round of capital raising comes just 2 years after a similar massive round that saw the nation’s major lenders raise more than $100 billion collectively to improve their weak finances. Of course if someone was giving me billions of dollars in new capital every 2 or 3 years, I could probably also run a bank that looked very profitable on paper! But unfortunately, I have no benefactor like the Chinese government or investors who like the China banking story, which is looking increasingly unattractive with the announcement of each new fund raising plan.
Bottom line: BoCom’s new fund raising plan is the latest from China’s banking sector, with more likely to come this year as Beijing shows growing willingness to pay the bill.
Related postings 相关文章:
◙ More Banking Bad News From Minsheng 民生银行融资揭示银行业困境
◙ 2012: Capitial Raising II Year For China Banks 2012：中国银行业的又一个融资年
◙ Message to Beijing: Privatize the Big 4 Banks 对中国政府说：将四大银行退市吧
