SHANGHAI - China Everbright Bank Co Ltd plans to sell shares in Hong Kong for the first time, in a deal that could be worth around $7.6 billion and lead the way for more fundraising by other smaller banks.

The mid-sized Chinese lender had already expressed its intention to sell H shares, but the plan caught many analysts by surprise as it comes only six months after the bank's $3 billion initial public offering on the Shanghai market.

"It is earlier than expected, as Everbright Bank should not be short of capital after last year's IPO," said Jin Lin, an analyst at Orient Securities Co. "This is a strategic move that would open a new channel of capital-raising for Everbright and shows that in the banking sector capital is king. More cash enables companies to expand faster and make acquisitions easier."

Last year, Everbright Bank joined lenders such as Bank of China and China Construction Bank in a rush to raise funds to strengthen their balance sheets after a lending binge in 2009.

Tougher banking rules and monetary tightening could push banks, especially the smaller ones, to consider raising more money from the capital market.

"Although monetary tightening has eased the pressure on banks to raise capital, lenders face more economic uncertainty, prompting them to prepare for the worst," said Jin of Orient Securities.

Mid-sized lenders such as China Merchants Bank and Shenzhen Development Bank, as well as dozens of city commercial banks, may also look to raise more funds, he said.

Everbright Bank plans to sell up to 10.5 billion H shares with an over-allotment of up to 1.5 billion shares, which would bring its total H-share issuance to as much as 12 billion.

Everbright Bank could raise around 50 billion yuan ($7.6 billion) in Hong Kong before the over-allotment, according to Reuters' calculations.

Everbright Bank's shares fell 0.25 percent to 3.96 yuan on Monday in Shanghai.

"Proceeds from the H-share issuance will be used to supplement our core capital, increase capital adequacy ratios, improve our profitability, help us ward off future risks and support rapid development of our businesses," Everbright Bank said in a statement to the Shanghai Stock Exchange.

The bank's core capital-adequacy ratio may rise to 11 or 12 percent after its planned Hong Kong share sale, compared with an expected 8.8 percent in 2010, according to Qiu Zhicheng, an analyst at Guosen Securities.

Chinese banks are facing a tough time as Beijing has been aggressively tightening liquidity to cool its red-hot economy and bring down stubbornly high inflation. China has raised interest rates three times in the past four months, repeatedly required banks to set aside more cash as reserves - with the latest being the reserve requirement hike on Friday - stepped up real estate curbs and urged banks to tighten mortgage lending.

Everbright Bank said it will submit the H-share flotation plan at a shareholders' meeting on March 14. Its Hong Kong issue will include sales to qualified institutional investors in the United States and informal public issuance in Japan, it said.

Reuters

(China Daily 02/22/2011 page17)