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China's blockbuster convertible debt sale draws bids equal to size of Indonesia's economy as investors seek safer bets

Zhang Shidong in Shanghaishidong.zhang@scmp.com

Shanghai Pudong Bank is attracting blockbuster demand from investors for what could be China's biggest sale of convertible bond offering as investors flock to safer bets amid softening economic outlook.

The lender is seeking to raise 50 billion yuan (US$7.1 billion) of securities that can be converted into equity to help replenish its capital, according to an exchange statement. Shanghai Pudong Bank has received 7.8 trillion yuan of orders for half of the securities on offer, representing an oversubscription rate of more than 300 times. The other half has been set aside for existing shareholders.

The offering will lock up the equivalent of US$1.1 trillion cash, almost four times the market value of top lender Industrial and Commercial Bank of China, or the size of Indonesia's gross domestic product, the biggest economy in Southeast Asia.

The convertible debt is rated AAA and coupon will incrementally rise to 4 per cent when the bond matures in the sixth year, the bank said. Successful bidders will be announced on November 1. Citic Securities and Guotai Junan Securities are the sponsors of the debt offering.

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The frenzy underscores rising demand for safer assets and cautious sentiment on Asia's largest stock market as traders snapped up bank stocks in the face of US-China trade war and faltering economic growth. China's growth slowed to 6 per cent last quarter, the government said, the slowest since records began in March 1992.

Bank stocks are the cheapest among all industry groups in China. A gauge of 35 banks have climbed 5.6 per cent on the mainland's exchanges this month. They trade at six times realised earnings, almost half as expensive as the multiple of the benchmark Shanghai Composite Index. Shanghai Pudong Bank has risen 7.9 per cent this month, outstripping a 1.7 per cent advance in the Shanghai benchmark index.

The bank's convertible bond offering came after Chinese securities regulator eased some the restrictions to help boost access to capital for the nation's lenders. The China Securities Regulatory Commission had earlier tightened approvals for fundraising through such hybrid debt after a rally on stocks this year led to an offering that was eventually 5,550 times oversubscribed.

The revival in convertible debt sales will give an additional financing avenue for some lenders which have been shut out of direct stock offerings because their net asset values are below stock prices. Replenishing capital is crucial for banks because of heightened competition from foreign rivals next year as China fully scraps restrictions on overseas investments in its financial industry.

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Shares of Shanghai Pudong Bank rose 0.6 per cent to 12.77 yuan at the close of trading in Shanghai on Tuesday. The lender has a market value of 374.8 billion yuan, making it the eighth biggest among the publicly traded Chinese banks. The shares traded at a 20 per cent discount to net asset value and were valued at 5.8 times earnings.

Proceeds from the convertible bond sales will be used for business expansions and to replenish core first-tier capital when the debts are converted into stocks, Shanghai Pudong Bank said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.