Stock offering plans by China's banks seen as short-term fix

Mon Sep 2, 2013 5:15pm EDT
 
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By Michael Flaherty and Denny Thomas

HONG KONG (Reuters) - For the Chinese banks seeking billions of dollars in upcoming stock offerings, a concern is growing that the money will only refinance old loans and do little to prevent the lenders from hitting up shareholders for more cash in a few years or less.

In 2010, Chinese lenders raised $82 billion as a surging stock market helped them replenish cash after a post-financial crisis lending binge. Now, in a far less forgiving climate, they are again lining up for more money, attempting to tap investors as the economy slows, profits shrink and unpaid debts pile up.

China's largest banks are well capitalized compared to their global peers. But the same cannot be said for its small to mid-sized banks, where a pipeline of stock deals is adding up at a time when worries are rising about their exposure to the country's slowdown and the health of their balance sheets.

By issuing new shares, the banks will be diluting historically low share prices, with little clarity on where the cash is going or how it will help them weather the turmoil building up in China's financial markets.

"Is the money being raised for international expansion? Are there going to be many changes with more capital? No," said China bank analyst Mike Werner of Bernstein Research. "Are they going to have to raise capital again, three years down the road? Probably."

UBS estimates that Chinese banks listed in Hong Kong face a capital shortfall of 300 billion yuan ($49 billion). For those not listed in Hong Kong, a steady march of small to mid-sized Chinese lenders plan to issue shares in the city.

Around $11 billion worth of share sales by China's financial institutions are expected in Hong Kong from now to the first half of next year, Thomson Reuters data show.

Bank of Chongqing plans to raise up to $800 million in a Hong Kong IPO, while Bank of Shanghai is seeking around $2 billion in a combined Shanghai and Hong Kong offering, according to previous reports by Reuters and IFR.   Continued...