Four Chinese lenders are planning to sell up to $22 billion of hybrid securities by the end of the first half of the year as most companies rush to grab the chance after months of global financial slowdown. Bank of Communications Co.'s 60 billion yuan issue is included in the offerings which are claimed to be the largest in the domestic market in China. Bloomberg reported that the total amount is twice the amount of fundraising raised in 2018.
Hao Deng, chief executive officer at Beijing GEC Asset Management Ltd., said that the sharp increase in new supply will definitely place pressure on the market in the short term especially in the current risk-aversion environment in the equity market. He also added that in the long run, the increase of big-cap convertible bonds will help make the market more dynamic and attractive.
The other banks that are scheduled to issue hybrids are Ping An Bank Co., Citic Bank Corp., and Bank of Jiangsu Co. The banks' mainland-listed stocks have lost around 17 percent from early February of last year.
China' Securities Regulatory Commission has given their approval to another 54 companies to sell convertible bonds. According to data released by the Northeast-securities Co. as of Jan 2010, the total bond issuance is approximated to be around 200 billion yuan. Currently, the biggest deal in China was made by the Bank of China Ltd. of 40 billion yuan in June 2010.
The country is currently focusing on assisting banks in replenishing capital as it continues its crackdown on financial risks and shadow banking without getting much effect on credit growth. The approval shows that the country is rushing its regulations and its support to the financial institutions.
The Central China Securities Co. noted that listed Chinese banks will face shortages of 1.6 trillion yuan in three years if they will maintain their current levels of capital strength. Analysts headed by Liu Ran said that bank's fundraising pressure will mount with sower profit growth and tougher regulatory requirements. He added that the banks are expecting support from the government through policies.
Qian He, a money manager at HFT Investment Management in Shanghai, said that if bond-focused funds must be exposed to convertible bonds if they want to improve returns this year under such market conditions. He noted that stocks are likely to outperform bonds in the second half.
Wang Junlin, stocks and derivatives researcher at Beijing Lerui Asset said that there's a higher possibility that banks will offer higher coupons for their convertible bonds due to their needs for capital replenishment.
