Four Chinese lenders are planning to sell up to Rmb 146 billion ($22 billion) of convertible bonds by the end of the first half of 2019, as firms rush to bolster cash levels following months of financial tightening elsewhere.
The issuance would include the largest ever offering of this type of security in China’s domestic market by Bank of Communications, which hopes to sell Rmb 60 billion. If the sale goes to plan, the four banks will raise twice the entire amount raised for 2018, according to Bloomberg calculations.
China’s banking sector is battling rising default rates and a weaker economic outlook. Regulators’ recent approval to allow the hybrid bonds to be sold may provide some liquidity relief but threatens to crowd out yields with a spike in supply.
“The sharp increase in new supply will definitely put pressure on the market in the short term, especially in the current risk-aversion environment in the equity market,” Hao Deng, chief executive officer at Beijing GEC Asset Management, told Bloomberg. “In the long run, however, the increase of big-cap convertible bonds will help make the market more dynamic and attractive.”