Share prices of Shanghai Pudong Development Bank declined yesterday after concerns that the share sale plan announced by the lender could drain money from the market.

The Shanghai-based lender, which is now 3.8 percent owned by Citigroup, said it plans to augment its capital base through diversified fund raising channels, including shares and hybrid bonds sales as well as overseas listing.

The lenders' shares fell by 4.8 percent on Friday after it announced the plan. Yesterday it said the regulator has approved its plan to sell 1.14 billion new shares through a private placement this year, sending its stocks down another 2.98 percent before closing at 19.85 yuan per share.

The bank said it plans to raise 15 billion yuan through the private placement and would price its shares at about 13.2 yuan, well below the current market price of 19.85 yuan.

"As the market is quite sensitive to liquidity, any move to divert funds may hurt investor sentiment," said Fu Lichun, analyst, Southwest Securities.

"Though the fund-raising plan is a positive trigger for the bank in the medium term, many investors still prefer to lock in profits first when the market trend is still uncertain," he said, noting such corrections might last for a few days.

According to the bank's medium-term capital replenishment plan, it aims to boost its capital to at least 115 billion yuan by 2010 and to 134 billion yuan in 2011, up from the 78.8 billion yuan at the end of June this year, and raise its core capital ratio and capital adequacy ratio to above 7 percent and 10 percent respectively by 2010.

Due to the rapid credit expansion in the first half, the bank has seen its capital adequacy ratio dip to 8.11 percent as of June 30, well below the industry requirement of at least 10 percent, prompting the lender to look for more capital replenishment.

The nation's top banking watchdog has warned some domestic mid-sized lenders whose capital adequacy level was nearing the industry bottom line earlier this month against the potential risks of galloping lending and blocked their access to certain businesses.

The bank, which currently has 518 outlets nationwide also plans to expand its presence to about 800 outlets in 2010 after the private placement. It will also get 15 billion yuan to boost capital adequacy ratio to 9.65 percent and core capital ratio to 6.22 percent.

Huang Wei, banking analyst at Zheshang Securities, said that to achieve a 10-percent capital adequacy ratio in 2010, the bank's loan growth should not exceed 25 percent, failing which it would need to access more funds from the market.

(China Daily September 22, 2009)