China Citic Bank to Raise $6 Billion After Rapid Asset Expansion

(Bloomberg) -- China Citic Bank Corp. plans to raise as much as 40 billion yuan ($6 billion) by selling bonds convertible into yuan-denominated shares after an expansion in assets that one analyst describes as “unsustainable.”

The money will fund growth and, after conversion, will replenish the bank’s core Tier-1 capital, the Beijing-based lender said Thursday, after its core Tier-1 ratio fell to 8.89 percent as of June 30 from 9.12 percent six months earlier.

It’s the first convertible bond sale in the onshore market by a Chinese lender in more than three years.

Some Chinese lenders are raising money as they grapple with their weakest profit growth in more than a decade and a pileup of bad debt, after flooding the financial system with cheap credit for years to prop up economic growth. Industrial Bank Co. said last month it plans to raise up to 26 billion yuan in a private stock placement.

Citic Bank’s balance-sheet expansion was “unsustainable,” with its total assets growing 23 percent from a year earlier to 5.6 trillion yuan in June and loans rising 19 percent, said Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein & Co. The lender’s profit growth of 6 percent was underpinned by cost controls and limiting provisioning for bad loans, he wrote in a note.

Shadow Lending

Citic Bank’s fastest-growing assets include loans and investment receivables, a category that covers so-called shadow lending where money may be channeled to borrowers through intermediaries.

Fundraising by Chinese banks also includes a planned $8 billion initial public offering in Hong Kong by Postal Savings Bank of China Co. In addition to the convertible bonds, Citic Bank said in September last year that it had won regulatory approval to sell as much as 35 billion of preferred shares.

China requires lenders classified as “non-systemically important” to have a minimum core Tier-1 ratio of 7.5 percent by the end of 2018 and a total capital adequacy ratio of 10.5 percent, with the the ability to add an additional 2.5 percentage point counter-cyclical buffer if needed.

Huatai Securities said that the convertible bond sale may boost Citic Bank’s total capital adequacy ratio by 1 percentage point.

Chinese banks will be able to maintain relatively high capital levels even if they’re hit by severe shocks, the central bank said in June. A stress test of 31 large- and mid-sized banks showed their aggregate capital-adequacy ratio fell to 10.97 percent from 13.32 percent in a worst-case scenario.

--With assistance from Judy Chen To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net. To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Paul Panckhurst

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