Shenzhen-based China Merchants Bank announced Wednesday that it would issue an up to 6.5 billion yuan (US$785 million) convertible bond and a 3.5 billion yuan (US$422.7 million) five-year subordinated debt.

The decision was made as an adjustment to its original plan announced last October to issue a 10 billion yuan (US$1.2 billion) convertible bond, which generated complaints from shareholders.

The board approved the changes after taking into consideration shareholders' advice and the company's urgent need to boost its capital adequacy, the bank said in a statement in major securities newspapers yesterday.

But the timing for the refinancing plan has not been set.

Chinese banks were allowed to issue subordinated debt by the banking authorities late last year. Such debt, sold to non-bank corporate legal persons, opens a new channel for banks to raise funds and increase capital adequacy.

"It is wise for the bank to cut its convertible bond issuing scale and supplement with subordinated debt," said Gao Qian, an analyst with China Securities Co in Beijing.

The compromise would help ease the pressure on the secondary market and make its refinancing plan more acceptable, he said.

Fund managers and minority shareholders of the bank had complaints about its previous plan to issue a 10 billion yuan (US$1.2 billion) five-year convertible bond, saying that such a large issue of convertible bond, which is convertible to bank shares at a later date, would dilute per-share earnings.

The re-financing plan also came too quickly following its public listing in 2002, they said.

But the bank, which reported a fast business and profit growth over the past few years, is in urgent need of fresh capital to underpin the expansion.

(China Daily February 19, 2004)