China's Huijin set to issue $5.9 billion bond next Tues

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Thu Aug 19, 2010 10:31am BST

* Proceeds to help replenish capital of China's big banks

* Huijin may pay a bit more on its bonds than policy banks

* Market seen absorbing issue easily after c.bank injection

(Adds details)

SHANGHAI, Aug 19 (Reuters) - China's Central Huijin Investment Co, the largest shareholder of the country's state-controlled banks, said on Thursday it will sell 40 billion yuan ($5.9 billion) of bonds next Tuesday, part of efforts to replenish the capital of the country's big banks.

The inaugural bonds approved by the People's Bank of China are part of a series of 187.5 billion yuan, comprising a 20 billion yuan seven-year issue and a 20 billion yuan 20-year issue.

Huijin, the domestic arm of China's $300 billion sovereign wealth fund China Investment Corp [CIC.UL], needs fresh funds to buy additional shares being offered by China Construction Bank (0939.HK) (601939.SS), Industrial and Commercial Bank of China (1398.HK) (601398.SS) and other lenders rushing to beef up capital depleted by a lending spree last year.

Proceeds were also needed to recapitalise Export-Import Bank of China and China Export and Credit Insurance Corp, it said.

The bonds have been classified as risk-free, but traders say Huijin should still pay slightly more on its bonds than policy banks such as China Development Bank [CHDB.UL] to compensate for its poorer liquidity given its relatively smaller supply.

CDB in comparison has a huge 3.5 trillion yuan of bonds outstanding in the market, according to China Central Depository & Clearing Co Ltd. (www.chinabond.com.cn)

But the market is expected to easily absorb Huijin's bond issue, especially after the People's Bank of China's (PBOC) generous net injection of 41 billion yuan in its open market operations this week, its first injection in five weeks.

The indicative secondary market yield on 20-year financial bonds issued by policy banks CN20YSFIX=R was at 4.1750 percent on Thursday, according to Reuters Reference Rates.

The seven-year yield CN7YSFIX=R was at 3.2720 percent bid on Thursday.

Huijin said the volume of the sale could be increased to a maximum of 54 billion yuan if demand proves strong via a greenshoe option of 6 billion yuan for the seven-year issue and 8 billion for the 20-year portion.

Reuters reported on Monday that Huijin would issue the first batch of the bonds on Aug. 24 in the form of 26 billion yuan of 7-year bonds and 28 billion yuan of 20-year bonds.

As at end-2009, Huijin's total assets were 1.41 trillion yuan and net profits were 218.9 billion yuan.

($1=6.79 Yuan)

(Reporting by Steven Bian and Karen Yeung; Editing by Jacqueline Wong)

((karen.yeung@thomsonreuters.com; +86 21 6104 1783; Reuters Messaging: karen.yeung.reuters.com@reuters.net))

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