China’s big banks set to sell $22bn of hybrid securities by June-end

Bloomberg

China’s banks’ urgent want for cash is threatening to overload the country’s fledgling convertible-bond market.
Four lenders are due to sell as much as 146 billion yuan ($22 billion) of the hybrid securities by the end of June after the regulator approved the deals in recent weeks. That includes what could be the largest such offering China’s domestic market has ever seen: Bank of Communications Co’s 60 billion yuan issue. The fundraising total would be twice the amount raised in all of 2018, data compiled by Bloomberg show.
The issuance comes as Chinese banks beef up their capital buffers to contend with rising defaults and the country’s slowing economic growth. While recent approvals signal Beijing is expediting lenders’ financing ne-eds, there’s increasing concern that the flood of supply will put pressure on yields. Low equity valuations will also compel buyers to demand higher coupons.
“The sharp increase in new supply will definitely put pressure on the market in the short term, especially in the current risk-aversion environment in the equity market,” said Hao Deng, chief executive officer at Beijing GEC Asset Management Ltd. “In the long run, however, the increase of big-cap convertible bonds will help make the market more dynamic and attractive.”
In addition to Bank of Communications, Ping An Bank Co, Citic Bank Corp and Bank of Jiangsu Co are the other lenders due to issue hybrids. Their mainland-listed stocks, which all trade at around 0.8 times book value or less, have lost at least 17 percent since a rout started in early February last year.
The China Securities Regulatory Commission has given the green light to another 54 companies to sell convertible bonds. That would take the total tally of upcoming issuance as high as 200 billion yuan, according to data from Northeast Securities Co as of January 7. The country’s biggest deal yet was Bank of China Ltd’s 40 billion yuan sale in June 2010.
China has been studying plans to help banks replenish capital, as the country looks to continue with its crackdown on financial risk and shadow banking without hurting credit growth. The recent approvals are seen as the latest sign of the regulator speeding up support efforts.
Central China Securities Co. said in a December note that listed Chinese banks would face core tier-1 capital shortages of 1.6 trillion yuan in three years if they maintain their current
levels of capital strength.