Chinese bank rule change triggers preferred equity flood

Equity capital raisings by banks in the Asia Pacific region during calendar year 2014 exceeded US$48 billion, easily topping the previous year's US$40 billion in issuance. More noteworthy, though, was the change in mix away from common equity in favour of preference instruments, following a change in China's prudential banking regulations.

According to data compiled by business intelligence provider SNL Financial, Asia-Pacific banks raised US$19.5 billion in common equity during the 2014 calendar year. This was well short of the US$35.7 billion in regional equity raisings during 2013.

This drop in common equity issuance was, however, more than matched by a leap in preferred equity issuance, up from US$4.4 billion in 2013 to US$29.0 billion in 2014.

On SNL's numbers, banks headquartered in China accounted for about 98 per cent of all preferred equity raised by Asia-Pacific banks in 2014, after regulators unveiled favourable new rules in April.

Bank of China became the first to issue preference shares when it raised US$6.5 billion in an October 2014 sale of noncumulative offshore preference shares. The following month, the bank raised US$5.2 billion via a sale of onshore preference shares.

Common equity offerings were more dispersed than preferred equity offerings, with banks from seven different Asian-Pacific countries launching at least five common equity offerings during 2014.

The largest common equity offering of the year from Singapore's Oversea-Chinese Banking Corporation, with a US$2.6 billion rights offering completed on 15 September. The bank said "proceeds from the offering would be used to strengthen its balance sheet and provide the bank with additional financial flexibility."

The US$1.5 billion rights offering from Malaysia's Public Bank was the second-largest common equity raising in 2014, while the move by another Malaysian bank, CIMB, to raise a further US$1.1 billion from its shareholders was the year's fifth largest common equity raising.

HSBC took third place with a common stock offering, completed on 27 June 2014, that netted the global giant US$1.4 billion.