China's biggest fund raising effort causes stir
By
Tim Neary
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2/03/2010 12:00:00 AM
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The bill for China's bank-lending spree is coming due.
An announcement on February 23 by China's fifth-largest lender, The Bank of Communications, of a 42 billion yuan ($6.15 billion) rights offering, created a stir in Asian markets - not because it was unexpected, but because it represents the biggest fund raising effort by a mainland company since the heady days of 2007.
The move follows similar announcements by two other Chinese financial institutions, Bank of China and China Merchants Bank.
Smaller institutions have also been busily raising money, by initial public offerings or placements to state owned industrial companies.
At the very least the money is needed to offset a massive lending boom last year.
To augment stimulus spending by the central government, China's state controlled banks expanded their balance sheets by one-third, or almost 10 trillion yuan, necessitating an increase in capital.
When expansion of credit occurs gradually, this can come from reinvested profits.
When lending explodes as it did in China, fresh funds are necessary.
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