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Two state-owned groups are injecting $4.5bn into China’s Everbright Bank to top up its capital and are paying a 48 per cent premium to its Hong Kong share price to do so.
The placement of new Hong Kong shares amounts to 14.1 per cent of the current share capital and will be split 35 – 65 per cent between the bank’s parent, China Everbright Group and OCT, a tourism-focused state-owned enterprise. The two will pay HK$5.328 per share compared with a closing price on Tuesday of HK$3.60. The price also represents a 20 per cent premium to the price of Everbight Bank’s mainland-listed shares.
Strong credit growth and weakening profit margins have put pressure on many of China’s banks. Everbright Bank last week reported a common equity tier 1 capital ratio of 8.25 per cent for of the end of March, well below its peers’ average of 11.2 per cent for end-2016, as calculated by Moody’s. Everbright’s ratio was the lowest of the 11 banks covered by the credit ratings service, which has a negative outlook on the bank’s Baa2 rating – just two notches above junk-grade.
Weaker banks have come under pressure too from rising rates in the interbank markets where Everbright is one of several to rely on wholesale funding for more than half of its fresh funding in the second half of next year.
After the deal, Everbright Group will hold 26.4 per cent of the bank while OCT will hold 8 per cent. The state holds 19.3 per cent.