Construction Bank to launch new firm

China Construction Bank, one of the country's four largest State-owned commercial banks, said yesterday it would set up a joint stock company next week to prepare for an initial public offering.

　　The bank, which won a US$22.5 billion bail-out from the State in late December, was chosen by the central government as a pilot bank for the country's banking reform.

　　The bank was approved by the government in June to split into the China Construction Bank Group and the China Construction Bank Corporation - a joint stock listing vehicle three months later.

　　The joint stock company will continue to operate the bank's commercial banking business including its domestic and foreign currency deposits, loans, banking cards and clearance.

　　Business names, trademarks, Internet domain names and service call numbers of the China Construction Bank and its branches will remain unchanged and will continue to be used by the company.

　　The joint stock firm, with a registered capital of 194.23 billion yuan (US$23.4 billion), has five founding shareholders.

　　The largest shareholder is the Central Huijin Investment Co, which controls an 85.228 per cent stake in the joint stock firm.

　　Baosteel Iron and Steel Co Ltd, China's top steel maker, and electricity giant State Grid Corp each hold a 1.545 per cent stake.

　　Yangtze Power, which operates the Three Gorges project, has a 1.030 per cent stake.

　　The remainder goes to China Construction Bank Investment Co Ltd, which is wholly owned by the Central Huijin Investment Co.

　　The joint stock company also has plans to usher in foreign company investors as its equity owners, aiming to increase its capital strength, optimize capital structure and diversify ownership.

　　China Construction Bank President Zhang Enzhao said earlier that his bank's goal was to establish a modern share-holding commercial bank that will make it a competitive heavyweight in the global financial market.

　　Dong Chen, a senior analyst with China Securities, said Chinese commercial banks would have to sharpen their competitive edge before foreign banks enter the Chinese market without restrictions 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 per cent, the minimum required by the Basel Capital Accord reached by international banking managers.

　　"This means China's commercial banks, especially the four large State-owned banks, will have to achieve the goal before they get listed," Dong said.

　　By the end of June, the non-performing asset rate of China Construction Bank dropped 5.69 percentage points from the first quarter of this year to reach 3.08 per cent.

　　With the aim of replenishing the bank's capital base, China Construction Bank plans to issue no more than 40 billion yuan (US$4.8 billion) worth of subordinated bonds. The bonds rank after other bank liabilities in terms of claims on bank assets.

　　In July, the bank issued 15 billion yuan (US$1.8 billion) in subordinated bonds in the first sale of the bonds. The amount sold was 50 per cent more than earlier planned.

　　It will issue up to 10 billion yuan (US$1.2 billion) in a second sale of debt on Friday.

　　The bank plans to issue 8 billion yuan (US$963 million) in 10-year bonds this time. But it has reserved an option to expand that to 10 billion yuan (US$1.2 billion), depending on investor demand.

　　Industry experts say that an issue of subordinated debt is an effective measure for banks to increase their capital adequacy level.

　　After issuing all the bonds, the bank's capital adequacy level is expected to reach more than 8 per cent.

　　Last month, the Bank of China, another selected by the central government for its pilot banking reform, reorganized itself into a joint stock company, following the establishment of the Bank of China Limited.

　　The joint stock company, which has a registered capital of 186.39 billion yuan (US$22.5 billion), took control of all of Bank of China's assets, debts, employees and business.

(China Daily)

Some Call For China Govt To Pledge Construction Bk Aid-FT

DOW JONES NEWSWIRES
September 16, 2004 5:29 p.m.

NEW YORK -- China's government is coming under pressure to pledge help to China Construction Bank (CCB.YY), should the state-owned lender be hit by a sharp rise in bad loans after its planned overseas listing next year, the Financial Times reports in an article on its Web site Thursday.

Investors, CCB officials and advisers, believe a promise of financial support by Beijing is essential to allay fund managers' fears over the first international equity offering from China's banking system, the FT (Financial Times) said.

"The Chinese government has to come out and make an open pledge to investors that it cannot deny. The market will not just trust what the bank says," a person close to the situation told the newspaper.

A pledge from Beijing could simply say the state won't force CCB to lend to state-owned companies at below market rates as in the past. But some investors would prefer a binding promise from the government that it would buy back non-performing loans from CCB should levels rise above a threshold, the FT reports.

A pledge of financial assistance to CCB would also have to be extended to Bank of China (BCH.YY), another state-owned lender preparing an overseas initial public offering, the FT said.

________________

Concurrent IPOs
Prove Trying Goal For Chinese Firms

By JOSEPHINE LAU
DOW JONES NEWSWIRES
September 13, 2004

SHANGHAI -- Chinese companies that want to list simultaneously on Chinese and overseas markets will put the spotlight on the longstanding issue of artificially high valuations of China-traded shares, said an executive with international law firm Freshfields Bruckhaus Deringer.

In the long run, pricing differentials between shares traded in Hong Kong and China will converge, but for now it may be the biggest obstacle to overcome. Such listings are unlikely to be completed until the first quarter of 2005, according to Antony Dapiran, an associate with Freshfields in Beijing.

Technically, no legal obstacles stand in the way of concurrent listings, but there are some legal and logistical issues to be resolved, and "pricing has been the largest stumbling block," Mr. Dapiran said.

"If a Chinese company issues shares in mainland China and Hong Kong at the same price, it risks either underpricing its [Class]-A shares domestically or overpricing its [Class]-H shares in Hong Kong for international investors," he said.

Class-A shares are the main yuan-denominated stocks listed in Shanghai and Shenzhen, while Class-H shares are stocks of mainland China-incorporated companies listed on Hong Kong's main board.

Valuations for China-listed firms tend to be boosted by the high state ownership of nontradable share capital -- typically two-thirds -- which leaves fewer shares for private investors to chase.

As part of China's banking reform, the government is grooming two of its biggest banks -- Bank of China and China Construction Bank -- to restructure and go public on the domestic and global markets, possibly in simultaneous listings.

Freshfields, which is based in London, advised HSBC Holdings PLC on a deal last month in which the British bank took a 20% stake in China's fifth-largest lender, Bank of Communications. The Chinese bank plans to go public, possibly in several markets, but the timeline for any offering remains unclear.

Mr. Dapiran said Freshfields is involved with a number of Chinese companies seeking potential listings in mainland China, Hong Kong and the U.S., but declined to elaborate. The law firm this year advised Semiconductor Manufacturing International Corp. of Shanghai on its initial public offering in Hong Kong and New York, and Inner Mongolia-based China Mengniu Dairy Co. on its Hong Kong IPO.

In the past, differences in valuations weren't a problem because Chinese firms had always listed overseas first before returning home, said Mr. Dapiran. With a typical one-year lag time between a company's overseas and mainland listings, "Chinese firms were happy to list at a higher price at home, and domestic investors happy to pay it," he said.

Paying a premium partly had to do with mainland investors accepting the notion that an overseas-listed Chinese firm spent the prelisting period at home building up its capital base and market position, Mr. Dapiran said.

He noted that with all the challenges, simultaneous listings for Chinese companies may be more about prestige than anything else.

"Large, quality Chinese companies have been able to raise all the capital they need from international markets, without any need for the extra money from Shanghai and Shenzhen," he said.

________________

China May List Banks Without Keeping Shares

Government Move SeeksTo Change Lending Culture At State's Big Four Banks
By OWEN BROWN and ANDREW BROWNE
Staff Reporters of THE WALL STREET JOURNAL
September 1, 2004; Page A10

BEIJING -- China Construction Bank and Bank of China could be listed without nontradable state shares, official state media quoted a central bank official as saying.

The suggestion is the latest move reflecting the Chinese government's longstanding desire to impose market discipline and oversight on the banks, which have long been measured on their ability to build their loan portfolios, not their profits.

Xie Ping, director of the People's Bank of China's Financial Stability Department, said as long as the two state-run commercial banks conform to the relevant regulations of the China Securities Regulatory Commission, their overseas and domestically listed shares should remain tradable.

Speaking to the Financial News, Mr. Xie pointed out that shares held by Central Huijin Co., a company set up by the State Council in late 2003 to hold the government's controlling stake in China Construction Bank and Bank of China, which is first in line to be listed, also should be tradable under these conditions.

Mr. Xie said stakes in the two banks held by Central Huijin and foreign strategic investors before the public offerings "under certain conditions should be allowed to be traded, divested and transferred."

This marks a significant change from many previous privatizations in China, in which the government has retained a huge controlling stake in listed domestic firms through state and legal person shares.

State shares can't be traded, while legal person shares can be transferred only between state-owned companies and agencies. Both types of shares have been used to maintain state control over listed companies to fend off criticism from conservative government members opposed to privatizing state assets. But these separate classes of stock have tended to cast a shadow over the value of tradable shares, with investors worried that the government could at any time release them into the retail market, driving down prices.

Chinese banks' determination to build their loan portfolios has led to a mountain of bad debt, estimated at as much as $500 billion.

Only a minority of the shares of most listed companies are traded, meaning company boards don't have to worry too much about public shareholders. In many ways that defeats the purpose of stock-market listings, touted as a way to bring accountability to corporate boardrooms.

Chinese regulators appear determined to use the markets to change the lending culture of China's Big Four banks, and they are putting a lot of faith in foreign investors to inject discipline. Bank of China and China Construction bank are looking for overseas strategic investors who will likely have representation on their boards.

Mr. Xie's comments reflect the urgency of Beijing's task to transform the country's biggest banks before the market opens fully to foreign competition in 2007. The fear is that without market discipline, state money that has been poured into the banks to bail out their bad debts will be wasted.

State regulators have imposed tough conditions on the money. For instance, Bank of China and China Construction Bank are required to achieve a return on assets of at least 0.6% by 2005 and the average of top 100 international banks by 2007.

Mr. Xie also indicated Industrial & Commercial Bank of China will be the next state-run commercial bank that will be subjected to restructuring, possibly before year's end. But he said policy makers are still discussing the fate of the Agricultural Bank of China, regarded as the weakest of the big four state-run banks, in comments that suggest the government might not favor a public share offering.

oh, it's so long, here is becoming newspaper!

for you to have a multi-angle view of the initial public offerings of China's state banks. these are newswire articles, written to be read quickly, and yet to provide as much information as it can be packed in. actually, financial news articles like these are very popular readings for middle class americans, especially the professionals. it will become your daily routine to go over the front pages, the business pages and the sports pages of your local and national newspapers (i didn't say the op-ed pages :-).

hehe, now i haven't read them. because i have no patience. i don't know the contents of this news. i just feel it's so long, hehe, now i have no interest to finish reading it. well, as what you said, maybe it's not useful for me.