HONG KONG (Reuters) - Ping An Bank Co Ltd 000001.SZ will sell 14.8 billion yuan ($2.4 billion) of additional shares to its parent Ping An Insurance (Group) Co of China Ltd 2318.HK in the third-largest capital raising by a Chinese bank this year.
Ping An Bank will sell up to 1.32 billion of new shares to Ping An Insurance at 11.17 yuan each, the insurer said in a Hong Kong exchange filing on Sunday. That will raise the insurer’s stake in China’s 12th-largest bank by market capitalization to 59 percent from 52.38 percent.
While China’s top banks are well capitalized compared to their global peers, the same cannot be said for smaller and mid-tier banks like Ping An. UBS estimates that Chinese banks listed in Hong Kong alone face a capital shortfall of 300 billion yuan ($49 billion).
Shenzhen-listed Ping An will use the proceeds of the sale to replenish its core capital and increase its capital adequacy ratio to meet regulatory requirements. The deal is awaiting regulatory approval, its insurer parent said.
Lacking the cheap funding that the country’s ‘big four’ get from their vast depositor bases, smaller Chinese lenders face big capital shortfalls under tougher new laws that require banks to hold more capital.
Chinese financial institutions looking to raise funds in Hong Kong are expected to sell around $11 billion worth of shares in the city from now to the first half of 2014, according to Thomson Reuters data.
One key obstacle stands in the way for some banks needing cash to plug funding gaps, roll over loans, boost capital positions, or all three.
A Chinese government rule prevents mainland banks from raising funds in the equity markets when their price is below book value.
Ping An Bank’s price-to-book ratio has hovered below 1 in recent weeks, Thomson Reuters data show, although Monday’s uptick nudged it over that threshold to 1.07.
Shares of Ping An Bank rose 7.8 percent on Monday morning to 11.9 yuan. They are up 10 percent so far this year, while the broader Shenzhen SE Composite Index .SZSC has fallen 5.3 percent.
($1 = 6.1205 Chinese yuan)
Reporting by Donny Kwok; Additional reporting by Lawrence White and Elzio Barreto in HONG KONG; Editing by Stephen Coates and Ryan Woo