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China Merchants Bank (CMB), the nation's sixth-largest bank, plans to sell 2.2 billion shares in Hong Kong to fuel its expansion.

 

The amount is equivalent to some 15 percent of its outstanding stock including the sale, the Shenzhen-based lender said yesterday in a statement to the Shanghai bourse.

 

The lender has hired Merrill Lynch & Co to arrange the sale, Hong Kong-based newspaper The Standard reported last month.

 

Experts say 2006 is a good year for CMB to float shares in Hong Kong. On one hand, CMB has finished the non-tradable shares reform in February, paving the way for listing in Hong Kong. On the other hand, the growing momentum of China's economy and the high expectation on the renminbi appreciation also paints a favorable picture of Hong Kong's capital market this year.

 

However, according to a source at KPMG, an accounting firm that has done the annual auditing for CMB for several years, the bank is not likely to be listed in Hong Kong in 2006, as it hasn't started auditing for the list yet.

 

"The pricing of CMB's H shares will influence the performance of it's a shares," said an analyst who declined to be named. "If the pricing hovers around 6.5 yuan (80 US cents) to 7 yuan (86 US cents), it will be a piece of neutral news for CMB's A shares. If the pricing tops 7 yuan (86 US cents) or above, it is quite favorable for A shares."

 

CMB's shares closed at 6.28 yuan (78 US cents) yesterday, up 0.16 percent on the previous day.

 

The bank said it will use sale proceeds to improve its capital position as it seeks to expand its network and lend more.

 

CMB has received the regulatory go-ahead to open its first banking arm overseas in New York and is also looking for acquisition opportunities to tap into the Hong Kong market.

 

Qin Xiao, chairman of the bank, told China Daily last week that his bank is "interested" in entering the international financial hub and buying small and medium-sized local banks.

 

"Additional capital is required to support the bank's continuing rapid growth," said Ryan Tsang, Standard & Poor's credit analyst. "CMB's financial profile compares well against its listed peers' in many respects, including asset quality and capitalization."

 

The bank's profits have grown an average 49 percent yearly since 2000.

 

According to China's commitment to the World Trade Organization, foreign lenders are allowed to run renminbi businesses from the end of this year, posing a major threat to domestic players.

 

Chinese lenders are resorting to overseas equity markets or bond sales for capital after regulators stopped new share sales in May when companies pursued plans to make more than US$200 billion of mostly State-owned tradable stock.

 

"We will wait for a good time to float H shares in Hong Kong," CMB's Xiao said. "But the main purpose is not raising money but improving cooperate governance with a more strict supervisory environment after the list."

 

Unlike other Chinese lenders that are eager to bring in foreign investors, CMB has no such plans.

 

"Stake cooperation is not the only way to introduce the latest techniques and business know-how," said Xiao. "There are many other choices, such as hiring foreign staff, and we don't need a foreign lender's brand."

 

CMB has signed at least three technical cooperation deals with foreign lenders in terms of training and retailing banking business.

 

Established in 1987, CMB has become the nation's sixth-largest lender with more than 400 outlets in 30 Chinese cities. The bank has secured a competitive advantage against rivals by its early start in offering credit and debit cards and other technology-based products. The bank has the largest share of China's credit card market, with 5 million dual-currency credit cards issued by the end of 2005.

 

(China Daily March 17, 2006)