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China Construction Bank Tuesday issued its first group of 10 billion yuan (US$1.2 billion) worth of subordinated debt with a term of 10 years.
Bank President Zhang Enzhao said at the launch ceremony that half of the 10 billion yuan (US$1.2 billion) would comprise bonds based on a fixed coupon, while the other half would carry a floating rate.
The bank would also reserve the option to expand that to 15 billion yuan (US$1.8 billion), in line with investor demand, he said.
Zhang said that investors will be able to subscribe the bonds today and tomorrow.
The interest rate for the fixed coupon bond, which was between 4.80 percent and 4.87 percent, would be set based on the subscription.
And that for the floating-rate bond was between 1.90 percentage points and 2.00 percentage points higher than that for the one-year bank deposit.
Shen Bingxi, deputy director-general of the Financial Market Department of the , the nation's central bank, said a subordinated debt issue was an effective measure for banks to increase their capital adequacy level.
The bonds rank after other bank liabilities in terms of claims on bank assets.
China Construction Bank, one of the "big four" state-owned commercial banks, has been approved by the central bank and China Banking Regulatory Commission to issue no more than 40 billion yuan (US$4.8 billion) worth of such bonds to replenish its capital base ahead of a planned initial public offering next year.
After issuing all the bonds, the bank's capital adequacy level would reach more than 8 percent.
The bank also plans to usher in foreign company investors as its equity owners.
An introduction of foreign companies as strategic investors is beneficial for increasing capital strength, optimizing capital structure and diversifying ownership of the bank, Zhang said.
"Our goal is to establish a modern share-holding commercial bank that will make us a competitive heavyweight in the global financial market," he said.
Dong Chen, a senior analyst at China Securities, said Chinese commercial banks, especially the four largest state-owned banks, would have to sharpen their competitive edge before foreign banks are allowed unrestricted access to the Chinese market before the end of 2006.
"They will have to lower the rate of non-performing loans, get rid of historical financial burdens and raise their capital adequacy to international standards," he said.
The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers.
"This means China's commercial banks, especially the state-owned banks, will have to achieve the goal before they get listed," Dong said.
China Construction Bank's non-performing asset rate dropped 5.69 percentage points from the first quarter of this year to reach 3.08 percent by the end of June.
The bank, which received a US$22.5 billion government cash injection in late December, was chosen by the central government as a pilot project to turn it into a joint stock bank.
The bank received approval from relevant government departments early last month to be split into two - a company group and a share-holding company.
The share-holding company - China Construction Bank Corporation - would be ready for a stock listing.
China Construction Bank Corporation will continue to operate the bank's commercial banking business including its domestic and foreign currency deposits, loans, banking cards and clearance.
The business names, trademarks, Internet domain names and service call numbers of China Construction Bank and its branches will remain unchanged and will continue to be used by China Construction Bank Corporation.
China Construction Bank Group Inc is the shareholder of China Construction Bank Corporation and will not operate a commercial banking business.
(China Daily July 21, 2004)
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