CCB Issued Subordinated Bond (the First Sale)

CCB’s major measures to improve Capital Adequacy Ratio and core competitiveness

Zhang Enzhao addressed the issuance ceremony 

China Construction Bank (CCB), which won a US$22.5 billion bail-out from the government at the end of last year, plans to increase the supplementary capital by 40 billion Yuan. On July 20, CCB held an insurance ceremony for “CCB’s First Sale of Subordinated Debt, 2004-2005” in Beijing. And this was the first time for CCB to publicly issue subordinated bonds. The issuance is of great significance for the bank to expand its financing channels and successfully complete the restructuring program.   

China Construction Bank has been approved by the People’s Bank of China and the China Banking Regulatory Commission (CBRC) to issue no more than 40 billion yuan worth of such bonds. All the fund raised will be used to improve CCB’s supplementary capital. After this issuance, the bank’s capital adequacy ratio will reach more than 8%. Shen Bingxi, Deputy Director General of Financial Market Department of the People’s Bank of China, said that issuance of subordinated debt is an effective measure for banks to increase their capital adequacy level. We can see that from the significant jump in the global supplementary capital from 1988 to 2003 of US$ 50 billion to US$ 590 billion. Shen Xiaoming, deputy director of CBRC, believed that allowing State-owned commercial banks to issue subordinated bonds is an innovation in financial supervision. There is a need for banks to regularly release their performance data to the public after they issued debts. As a result, this can not only shows banks’ strength, but provides an access to continuous monitoring of banks internal risk management.     

The credit rating of AAA has been awarded to CCB’s first sale of debt, which includes 10-year fixed-rate bond of 5 billion yuan and 10-year floating-rate bond of 5 billion yuan. This is the first time in China to issue portfolios of subordinated debts. Investors can purchase what they like. Xu Fangming, Director General of Finance Department of the Ministry of Finance, when he addressed the ceremony, said that subordinated bonds were by no means inferior debts and suggested all people to buy it.  Zhu Yunlai, managing director of China International Capital Corporation Limited (CICC), the main underwriter for the bond, also made it clear that CCB’s superior bond credit has been recognized by the debt market and CICC is ready to support and assist CCB to complete the major undertaking.      

At the ceremony, Zhang Enzhao, CCB’s President and CEO, pointed out that as a key step in the process of CCB’s joint-stock reform, the issuance of the subordinated bond was a major measure for CCB to supplement its capital, increase its capital adequacy ratio, improve its capital structure and enhance its core competitiveness. The successful issuance is of great significance for CCB to complete its joint-stock reform. In the first half of 2004, CCB already had an operating profit before tax and provisions against loans and other assets of 32.84 billion yuan, an increase of  32% compared with the same period of last year. After doubtful loans were stripped off, CCB’s Non-performing loan fell to 3.08% according to five grades credit system. Recently, S&P has given CCB the highest credit rating in China. Zhang Enzhao stressed that CCB will provide its investors with strong confidence with its continuously growing banking businesses, improved governance structure, advanced internal control mechanisms, good financial performance and profitability. 

This ceremony was presided over by Zhao Lin, Deputy President of CCB. Officials from the banking authorities, members of underwriters and representatives from all intermediary institutions attended the issuance ceremony.