Agricultural Bank Raises $7.3 Billion in Bond Sale

May 19 (Bloomberg) -- Agricultural Bank of China, raised 50billion yuan ($7.3 billion) in the nation’s biggest corporatebond sale to boost capital and help pave the way for an initialpublic offering.

The largest lender to China’s 800 million farmers increasethe sale of subordinated bonds from a targeted 40 billion yuan,Beijing-based Agricultural Bank said in a statement posted on theofficial Chinabond Web site today.

The sale may lift Agricultural Bank’s capital ratio abovethe 10 percent minimum that allows it to sell shares to thepublic. The IPO, planned for as early as the second half of thisyear, would be the biggest by a Chinese lender since 2006 and capa decade-long reorganization of the banking industry that cost$650 billion.

“Although the bond sale paves the way for the IPO, theoverall restructuring plan remains murky,” said Liao Qiang, aBeijing-based analyst at Standard & Poor’s. “Agricultural Bank’srural operation is a low-margin, high-risk business.”

Agricultural Bank has weaker capital ratios than its threelargest domestic rivals even after getting $19 billion from thegovernment in October, potentially making it less attractive toequity investors.

Callable Bonds

Agricultural Bank sold 20 billion yuan of 10-year callablebonds at a coupon rate of 3.3 percent for the first five yearsand 25 billion yuan of 15-year bonds at 4 percent for the first10 years on the nation’s interbank market, according to datacompiled by Bloomberg.

The lender also sold 5 billion yuan of floating-rate bondsat 0.6 percentage point above the benchmark one-year deposit rate.China International Capital Corp. underwrote the bond sale. ZhouYuan, a press official at Agricultural Bank in Beijing, declinedto comment.

Chinese companies sold 122.3 billion yuan of domestic bondsin the first four months of 2009, triple the amount of the year-earlier period, according to data compiled by Bloomberg. Salessurged amid a moratorium on stock offerings and as companies tookadvantage of lower interest rates.

China Construction Bank Corp., the nation’s second largest,raised 40 billion selling subordinated bonds in February. Thesale was split into 12 billion yuan of 10-year callable bonds ata coupon rate of 3.2 percent for the five years and 28 billionyuan of 15-year bonds at 4 percent for the first 10 years.

Capital Ratios

Agricultural Bank’s capital adequacy ratio stood at 9.41percent as of Dec. 31, compared with 13 percent for Industrial &Commercial Bank of China Ltd., the nation’s largest lender. ChinaConstruction Bank Corp. was at 12.2 percent, and Bank of ChinaLtd. was at 13.4 percent.

In January, state-controlled Agricultural Bank became ashareholding company, paving the way for it to sell shares. Themove completed a decade-long reorganization of the nation’s banksthat has cost the government about $650 billion.

Agricultural Bank is planning to attract so-called strategicinvestors to buy shares in it before the IPO, President Zhang Yunsaid last week, without providing additional details. China’sMinistry of Finance and a unit of the nation’s $200 billionsovereign wealth fund each hold 50 percent of the lender.

Shanghai Pudong Development Bank Co., part owned byCitigroup Inc., this month won shareholder approval to sell 15billion yuan of bonds. Bank of China, the nation’s third-largestby market value, said March 6 it plans to sell as much as 120billion yuan of subordinated bonds over the next four years.

Agricultural Bank had 7 trillion yuan of assets at the endof last year, making it the nation’s third-largest by thatmeasure. It operates 24,064 branches nationwide.

Subordinated bonds are counted as lower-Tier 2 capital. Inthe event of bankruptcy, holders of subordinated notes receivepayment only after other debt claims are paid in full.

To contact the reporter on this story:John Liu in Shanghai atjliu42@bloomberg.net