Commentary on Political Economy

Thursday, 17 September 2020



China’s Biggest Bank Falls Short in Bid to Replenish Capital

Updated on 
  • ICBC sold $2.9 billion out of a planned $4.4 billion AT1 bond
  • China’s banks are under pressure from sliding earnings

A massive push by China’s biggest banks to boost capital amid the worst downturn in at least a decade faltered out of the gate.

Industrial & Commercial Bank of China Ltd. slashed a planned bond sale of the riskiest type of debt by more than a third, raising only $2.9 billion in dollar-denominated bonds out of a planned $4.4 billion.

Some of China’s biggest lenders are trying to raise at least $29 billion in bonds this month to shore up capital as profits slide and bad debt balloons. Banks are being enlisted by the government to provide cheap loans to millions of businesses and consumers struggling with the fallout of the pandemic, triggering the worst earnings slump in a decade.

The sale by ICBC, the world’s largest bank by assets, was likely hampered by the competition from a jump in Chinese dollar debt sales, which have contributed to a record amount of global issuance this year. The Additional Tier 1 bonds priced at a yield of 3.58%, which was just below what rival Bank of China issued debt at earlier this year, according to Pramod Shenoi, head of APAC research at Creditsights.

“Achieving a tighter coupon may have been more important for the issuer,” Shenoi said. “We’ve seen that investors have had less cash to put to use more recently -- they have allocated their cash and cash levels are low -- so overall supply would have used up their cash.”

ICBC declined to comment on the sale.

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