Capital Travails of Chinese Banks to Put Pressure on Convertible Bonds

Efforts by leading Chinese banks to shore up their capital levels could potentially surfeit China’s nascent market for convertible bonds.

Listed Chinese banks urgently need to raise their capital levels, with analysts from Central China Securities forecasting that they could face a 1.6 trillion yuan shortage in core tier-1 capital in little as three years time without concerted action.

In order to deal with the issue Chinese banks have turned to the fledgling convertible bond market, with four lenders grabbing approval to sell as many as 146 billion yuan (approx. USD$22 billion) in the securities by the end of the first half according to a report from Bloomberg.

Big-five lender Bank of Communications has obtained approval to raise 60 billion yuan in funds via the hybrid instruments in what is set to be the largest offering of its type, while Ping An Bank, Citic Bank of Jiangsu have also grabbed the green light for their own issues from the China Securities Regulatory Commission (CSRC).

The approvals are considered to be a sign that regulators are accelerating measures to support Chinese banks in their efforts to replenish capital levels.

Analysts from Northeast Securities see upcoming convertible bond issuance rising to as high as 200 billion yuan, given that a total of 60 companies have obtained approval from CSRC for issues.

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