Bank of China To Issue $7.25 Billion In Debt
Bank of China will issue up to US$7.25 billion in subordinated
debt to shore up its capital base and reduce its exposure
to non-performing loans. This is seen as an important
prelude to make the bank more attractive to foreign and
domestic investors prior to its public listing.
The bank's objective is to reduce the ratio of non-performing
loans to 6 per cent of total assets by the end of 2004.
It is currently at 15.64 per cent. China's state-owned
banks have been overly exposed to other Chinese state-owned
enterprises, and were forced to make "policy loans"
which were never repaid.
Premier Wen Jiabao is now determined to overhaul China's
banking sector, so that at least one or two formerly state-owned
banks can meet international capitalization requirements,
and be listed on international markets. So far, most of
the overhaul efforts have been focused on Bank of China
and China Construction Bank, which have less exposure
than the other banks.
The move would need approval from the China Banking Regulatory
Commission. The general wisdom is that it will approve
the move as part of the bank's restructuring. Industrial
and Commercial Bank of China, which is China's largest
state-owned bank, has applied to issue 100 billion yuan
in subordinated debt.
Bank of China plans to list on the Hong Kong stock market
sometime in 2005, and is currently looking for foreign
and domestic strategic investors. Strategic investors
bring greater attractiveness to a new listing by attracting
institutional and retail buyers.
While the Chinese government has been daring in the scope
of the recapitalization revamp for the banks, they will
have to overcome the image that they are so large that
the government will not let them fail. To do this, their
boards and senior management will have to be completely
changed, and some outsiders will need to be installed
in senior oversight positions. So far, this has not happened.
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