A worker framed by the Chinese characters for "China" on a building in Beijing. China Investment Corporation is planning to increase lending to foreign private equity firms and hedge funds. [Photo: CFP]

Investment arm may hike stake after banks get nod for floats

Central Huijin Investment Co, the investment arm of China Investment Corporation, may increase its holdings in the country's three major State-run lenders after their new share sales get regulatory approval, a source close to the matter said Tuesday.

"If the securities regulator approves the new share sales this year, Huijin will increase its holdings," the source told China Daily on condition of anonymity.

But the source said that Huijin, as the largest shareholder of the country's three major listed lenders - the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China (BOC) - will not directly inject capital into the banks, which are facing capital pressures.

The investment unit said in December that it favors lower proportion of dividends to bank shareholders. Currently most of the banks distribute nearly 40 percent of the profits they earn to shareholders.

Central Huijin also said it may reinvest the dividends it receives to acquire new shares issued by the banks this year.

Chinese banks have been facing capital problems after last year's massive lending spree triggered credit risk concerns.

The China Banking Regulatory Commission said earlier that it would limit the pace at which the banks expand their assets if they cannot meet the stipulated capital adequacy requirements.

Chen Xi, an analyst with First Capital Securities, said Central Huijin's plan to bolster new share holdings would help ease lenders' capital pressures and refinancing efforts.

"The move is definitely positive for lenders. It shows that Huijin is still willing to provide funds to lenders," she said.

Analysts said the news would trigger a rally in banking shares and also help lenders to come in with better numbers this year.

"We're optimistic about the future performance of the lenders. Negative factors no longer exist and it is almost certain that they would report a 20 percent growth in revenues this year," Chen said.

She noted that the recent correction was market overreaction to an unexpected banking reserve ratio hike. Investors should not be too worried as this as an increase in the benchmark interest rate would help increase revenues for lenders, said Chen.

Chinese lenders have so far made considerable progress in their efforts to comply with the regulator's capital adequacy requirements. Bank of China, the country's largest foreign exchange lender, said earlier that it would float a 40 billion yuan ($5.86 billion) convertible bond issue in the A-share market. It is also planning to raise additional capital by selling new shares in Hong Kong.

Bucking the downward trend, bank shares on the Shanghai Stock Exchange ended slightly higher Tuesday with Bank of China rising 1.24 percent to 4.08 yuan and China Construction Bank rising 0.18 percent to 5.60 yuan.