Chinese Banking Reforms

The process of attempting to 'clean up' China's financial system continues. Where all this will lead only time will show. I am not as pessimistic about this as many of the professional commentators seem to be.

Huaxia Bank, a midsize commercial bank in Beijing, launches a long-awaited domestic IPO Thursday, the latest in what is expected to be a steady stream of listings by Chinese financial institutions over the next year. Huaxia, the fifth bank to list in China, saw its offering subscribed 143 times, according to an official at one of the underwriting firms. The IPO has ignited speculation about an accelerated timetable for partial listings on the mainland of China Construction Bank (CCB), one of China's big four state banks - something that had not been expected before 2006. CCB has established a special office to study a listing and is in the process of restructuring itself to prepare for a flotation. Huaxia will offer 1bn new shares, in addition to its existing 2.5bn shares, at Rmb5.6 per share. If the bank raises the full Rmb5.6bn ($677m) it will be one of the largest IPOs on the domestic market this year. According to analysts, the IPO amounts to a survival strategy for Huaxia, founded in 1992 as the financing arm of Beijing Iron & Steel, one of China's largest steel producers and still the bank's largest shareholder. The funds raised would amount to an effective recapitalisation, as the new money will allow the bank to expand, while meeting international standards for capital adequacy ratios.............

"They will probably go the way we have seen elsewhere in Asia, in which they allow a small free float, followed by a secondary offering of shares," said Terry Chan, of Standard & Poors in Hong Kong. Other options, which could be implemented at the same time, include a cash injection from the central government and further sales of bad debts in return for bonds. However, the issue of the true level of the banks' non-performing loans (NPL) still casts a shadow over any recapitalisation plans. CCB claims that its NPL ratio has fallen to as low as 12.43 per cent, down 3.47 per cent from the beginning of 2003, and well under the official average rate for the big four of about 28 per cent. "We think (the average rate) is much higher," said Mr Chan.
Source: Financial Times
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