Wave of Convertible Bonds from Smaller Lenders Expected Following 50B Yuan Issue by Industrial Bank

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Domestic observers expect smaller Chinese lenders to make greater use of convertible bonds to shore up their capital levels over the next several years, following a mammoth issue by one of the country’s leading regional banks.

Fujian province’s Industrial Bank Co. recently announced the issue of 50 billion yuan in convertible bonds, with offline subscription commencing on 24 December and preferential allocations to common shareholders as well as online subscriptions scheduled to start on 27 December.

Industrial Bank highlighted the need to “further solidify capital foundations” amidst tightening regulatory pressure from Chinese authorities.

“Even though at present capital adequacy levels still satisfy current capital requirements, there is still a background of continually intensifying regulatory vigour,” said Industrial Bank.

“In addition to satisfying future development needs, we have also reserved a buffer zone and raised risk resistance capability, in order to flexibly adapt to a continually changing external and regulatory environment.”

As of the end of the third quarter of 2021 Industrial Bank’s capital adequacy ratio was 12.92%, while its tier 1 capital adequacy ratio was 10.96% and its core tier 1 capital adequacy ratio was 9.54%.

The Industrial Bank issue brings the total volume of convertible bond issuance by Chinese banks in 2021 to 60 billion yuan in total.

Domestic observers say that over the next several years smaller Chinese banks can be expected to see a peak in convertible bond issues, due to their lower cost as well as the need for these lenders to raise their capital levels.

Figures from the China Banking and Insurance Regulatory Commission (CBIRC) indicate that as of the end of September the capital adequacy ratios of China’s big state-owned banks, joint-stock banks, municipal commercial banks and rural commercial banks stood at 16.84%, 13.39%, 12.96% and 12.46% respectively.

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