Capital market slump to weigh on ABC, BoCom funding plans

SHANGHAI - Agricultural Bank of China Ltd (ABC) and Bank of Communications Co (BoCom) may raise less than estimated in share sales after a slump in stock markets, underscoring the challenges of replenishing capital depleted by record lending.

A worried investor in Shenyang, Liaoning province. Experts say Chinese bank shares are cheap now, but they’ll become even cheaper and probably stay at that level for quite some time. [PROVIDED FOR CHINA DAILY]

ABC, China's fourth-largest lender by assets, will sell a 15 percent stake in an initial public offer (IPO), according to a prospectus published on June 4.

The lender will likely raise no more than $22 billion, Haitong Securities Co estimated, less than the $30 billion local media had reported.

BoCom said on Sunday that it will sell 33.07 billion yuan ($4.8 billion) of shares in a rights offer, about 20 percent less than initially planned.

Rivals including Bank of China Ltd that plan to tap equity markets must sway investors unnerved by Europe's sovereign debt crisis and the prospect of bad loans piling up in China after unprecedented lending last year.

"The outlook for the global economy is bleak and China won't be immune to a slowdown," said Lan Wang Simond, who helps manage $5 billion at Geneva-based Pictet & Cie Banquiers, including shares of Industrial and Commercial Bank of China Ltd (ICBC) and Bank of China Ltd.

"China banks' massive fund-raising plans are another overhang weighing down the market, so I would say the worst is yet to come for them," he said.

Wang said she reversed a decision to invest more in Chinese lenders after analyzing the industry, and hasn't decided whether to subscribe to ABC's IPO.

Stock performance

BoCom fell 2.8 percent in Hong Kong trading on Monday to HK$7.96 ($1.02) and traded at HK$8.04 as of 10:37 am local time, taking this year's decline to 11 percent.

The Shanghai Composite Index slipped 1.4 percent, taking this year's decline to 23 percent and making the gauge the worst performance among the world's 10 largest equity markets.

ABC, China's largest lender by customers, plans to sell 22.235 billion shares in Shanghai and 25.411 billion shares in Hong Kong, excluding an over-allotment option, according to a document posted on the securities regulator's website.

In addition to ABC's and BoCom's offerings, publicly traded competitors have announced plans to raise at least a combined 280 billion yuan in stock and bond sales.