Finance ministry, Central Huijin to buy rights shares of ICBC

13:23, September 21, 2010      

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The Industrial and Commercial Bank of China (ICBC) announced on Sept. 20 that its two major shareholders, China's Ministry of Finance (MOF) and Central Huijin Investment Limited, will buy the rights shares that will be offered by ICBC in proportion to the size of the stake each holds in the bank.

Central Huijin committed to subscribe to all the rights shares to be offered by ICBC in proportion to the stake it holds in the bank after it purchased all the rights shares offered by the Bank of China in accordance with the stake it holds in that bank.
The announcement shows that the ministry and Central Huijin will both use cash to purchase all of the rights shares offered by ICBC in proportion to their respective stake in the bank in line with the rights issue plan approved by ICBC's Board of Directors on July 28, 2010.

According to the share allotment plan passed by ICBC on July 28 of 2010, it plans to allot a maximum of 0.6 shares for every 10 shares held by its A-share and H-share investors to raise a maximum of 45 billion yuan. The statistical data shows that the ministry and Central Huijin jointly hold a more than 70 percent stake in ICBC, including more than 35 percent held by Central Huijin.

Market watchers believe that ICBC's motive behind selling its A and H shares through a rights issue is to guarantee the success of its refinancing plan and supplement its capital. According to a half-year report released by the bank earlier this year, its capital adequacy ratio was more than 11 percent as of June 30, and its core capital adequacy ratio was more than 9 percent.

Sheng Hongqing, who works for China Everbright Bank, said that although ICBC's core capital adequacy ratio was quite high, its overall capital adequacy ratio was only slightly above the minimum regulatory requirement of 11 percent for China's large banks, indicating that the bank would soon be unable to meet the minimum requirement if it does not supplement its capital in time.

Sheng also said that Central Huijin's capital injection into ICBC will increase rather than reduce dividends.

"Given that capital is now extremely scarce in China, any commercial bank that has enough capital will get more customers and thus achieve excellent returns," he added.

ICBC's A shares closed 0.25 percent higher at 3.97 yuan on Sept. 20, while its H shares closed 1.51 percent lower at 5.86 Hong Kong dollars the same day. Sheng said that ICBC's fundraising through a rights issue will probably push up the bank's share price, and given the bank's leading position in the A-share market, the situation of the banking sector may improve accordingly.

By People's Daily Online


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