HONG KONG, March 27 (IFR) - China Zheshang Bank
last week became the first Chinese bank to issue US dollar
Additional Tier 1 securities this year, paving the way for other
mainland lenders to raise capital overseas.
Zheshang's $2.175 billion offshore debut comes as capital
requirements and a push for overseas expansion, together with
ample liquidity in the Asian bond market, are encouraging more
Chinese lenders to explore opportunities.
"Capital needs and the desire to expand funding channels,
will drive more Chinese banks to issue AT1s and other debt
instruments in the offshore market, especially those already
listed on the Hong Kong stock exchange," a banker at a Chinese
investment bank said.
Only last week, four more Chinese lenders announced plans to
issue AT1 securities in the offshore market to replenish their
Harbin Bank, which last December announced plans
to issue up to 8 billion yuan ($1.2 billion) of AT1s in the
offshore market, has recently picked 12 banks to arrange the
proposed offering, a banker who participated in the beauty
China Merchants Bank late on Friday said it
plans to issue up to 35 billion yuan preference shares in
onshore and offshore markets.
It plans to issue up to 7.5 billion yuan in the offshore
market and up to 27.5 billion yuan in China's domestic market,
according to a filing with the Hong Kong stock exchange.
Postal Savings Bank of China said on Friday it
would raise up to 50 billion yuan in offshore AT1 notes.
Bank of Chongqing and Bank of Jinzhou
also said last week that they planned to issue offshore AT1
Meanwhile, Bank of Zhengzhou, a lender based in
central Henan province, on Monday said it plans to raise up to 8
billion yuan from an offshore preference shares offering.
Rapid credit growth, together with tighter controls on
off-balance-sheet wealth management activities and deteriorating
asset quality, are putting pressure on Chinese banks to raise
external capital, Fitch said in a report. The 15 commercial
banks rated by Fitch have in total announced plans to issue 450
billion yuan in capital by end-2018 and may need to raise more
than that amount, Fitch said.
The vast domestic market will account for much of that
amount, but the offshore market is providing Chinese lenders
with an attractive alternative as they look to support overseas
"China is trying to stop capital flight. It is encouraging
banks to use offshore funding to support cross-border M&As,
rather than onshore funding. So Chinese banks will continue to
raise funds in the offshore market," a banker from a European
Bank of China was the first mainland lender to issue AT1
capital offshore with a $6.5 billion issue in October 2014, and
this was followed by similar issues from other big banks as well
as bad-debt manager China Cinda Asset Management.
Huishang Bank was the first of the smaller lenders to tap
the offshore AT1 market, printing a $888 million 5.50 percent
AT1 issue in November last year. China Minsheng Bank followed
shortly afterwards with a $1.439 billion 4.95 percent AT1s in
December last year.
The new entrant, Zheshang, based in eastern Zhejiang
province, priced its Reg S perpetual non-call five AT1s at par
to yield 5.45 percent, in from initial guidance of 5.7 percent
Final order statistics were not available at the time of
writing, but the last update prior to pricing had demand of over
$4 billion, including orders from joint lead managers.
Much of that demand was said to come from Chinese investors,
in line with other Chinese banks' AT1 offerings. The securities
are not rated, which made it difficult for foreign investors to
assess the credit risk.
"The strong home bias of Chinese investors has provided
support to Chinese banks' AT1s, and in general, to other Chinese
credits, such as bonds issued by LGFVs (local government
financing vehicles)," a trader at a European bank said.
On the other hand, the yield levels of Chinese bank AT1s
"totally don't make sense" for foreign investors, who can find
much better returns from investing in European bank AT1s, the
A trader from a Chinese brokerage also described Zheshang's
pricing as tight, and put fair value at 5.6–5.7 percent, between
the yield level of Minsheng's and Huishang's AT1s. These three
Chinese banks' AT1s are all unrated and have similar structures.
Zheshang’s deal was the second AT1 issue in Asia this year,
after Macquarie Bank sold $750 million of AT1 bonds on March 1.
CICC HK Securities, Citic CLSA Securities, CMB
International, Ping An of China Securities (Hong Kong), Haitong
International, BOC International and HSBC were joint global
coordinators of Zheshang's deal.
The JGCs were also bookrunners with BNP Paribas, CMBC
International, CCB International, Goldman Sachs (Asia), ABC
International, Bank of Communications' Hong Kong branch, SPDB
International, Yue Xiu Securities and China Silk Road
(Reporting by Carol Chan; editing by Daniel Stanton and Steve