Minsheng Bank Refinancing Storm Temporarily Subsided

Over two months Minsheng Bank (600016.SH, 1988.HK) Refinancing The storm is temporarily subsiding. In March 19th, Minsheng Bank announced that the new refinancing scheme was expected to be accepted by shareholders in May 4th.

In the past two months, Minsheng Bank has been struggling with refinancing. In January 8th, a refinancing announcement on non public issuance issued the Minsheng Bank to the cusp of public opinion. Minsheng bank executives revealed that after the launch of the original plan, the market reaction was too big. Even small and medium-sized shareholders called Beijing police, saying that if Minsheng Bank did not change the financing plan, they would hold a demonstration. In the market and small shareholders and many other criticisms, Minsheng Bank has to terminate the original plan in frustration.

However, in face of the capital adequacy ratio across the "red line", the need for refinancing of Minsheng Bank is under siege. Minsheng Bank's 2010 annual report shows that the core capital adequacy ratio and capital adequacy ratio of the bank were 8.07% and 10.44%, respectively, which were 0.85% and 0.39% lower than those in 2009, respectively. CBRC 8.5% and 10.5% for non systemically important banks.

In desperation, in February 26th, people's livelihood was forced to introduce new refinancing schemes. From the private placement of 21 billion 479 million yuan to the A share in the A share market, convertible bonds and H shares will be publicly issued. The scale of the new scheme is about 28 billion 500 million yuan. After the adjustment of the two financing plan, which was only more than 50 days before and after, there was a war of interest between the board of directors of Minsheng Bank, several old shareholders, minority shareholders and management.

　　 Frustrated "Shi Yuzhu"

In the new refinancing scheme, Minsheng Bank will issue about 20 billion of A shares convertible bonds. However, whether this plan can be favored by several large shareholders is not yet known.

In March 18th, Minsheng Bank's Investor Relations Department said that under the new scheme, the old shareholders of A shares could have priority to subscribe when issuing convertible bonds. However, reporters from Minsheng Bank, an independent board of directors, was informed that the price of convertible bonds has not yet been determined, and several senior shareholders have not indicated their intention to subscribe.

Between the lines of the old and new schemes, it is a hard game of "going in and out".

Minsheng Bank, a senior executive told reporters that before the rapid integration of funds, the Minsheng Bank Board of directors held a number of old shareholders in the end of 2010. According to him, the original private placement price of the original scheme was more than 5 yuan per share, but several shareholders were not interested in the price. "It is not easy to persuade several major shareholders to apply for the purchase." He said.

In December 2010, Minsheng Bank held a mid term meeting of the board of directors in Hokkaido. Dong Wenbiao, chairman of the board and members of the board of directors, began to mobilize the old shareholders to apply for the purchase. Dong Wenbiao even promised: "if the rich get some money, the Minsheng Bank will give a huge return."

Shi Yuzhu seems to be most interested. Under his original plan, Shanghai's kit 4.57 subscribed 1 billion 424 million shares at a price of 4.57 per share, accounting for 30% of the new issue shares. After the issuance, 1 billion 571 million shares will be held and the shareholding ratio will reach 5%.

Meanwhile, Lu Zhiqiang's Pan Hai holdings subscribed 1 billion 190 million shares as the second largest subscribers, accounting for 25% of the newly issued shares and 6% of the shares after the issuance. The South hoped to subscribe for 660 million shares, and the shares would be 8.5% after the issuance. Apart from a few large private shareholders, Wang Junhui, vice president of 21.53,0.20,0.94%, once said, "you do not want me." However, because of its state holding nature, Minsheng Bank controls its subscription amount to 500 million shares, and the share ratio after subscription is 6.4%.

According to the above executives, Shi Yuzhu added after the subscription scheme was announced. The new shareholder, Jiangsu Rongsheng and Huatai motor, after the announcement of the original subscription scheme, was forced out of cash because of no cash. Shi Yuzhu took the lead and took over the 766 million shares subscribed together. As a result, Shanghai's 2 billion 190 million subscriptions amounted to about 6000000000 yuan.

But this expectation was finally lost. An independent director of the meeting said that at the 9 meeting of the board on February 25th, the announcement of the revised financing plan was announced. Shi Yuzhu objected to the biggest voice, "more than 60 hundred million of cash was taken out", but was in the midst of a variable, depressed "quit smoking in the venue."

Several other big shareholders have not accepted the new plan thrown out by management. The board of directors is divided and full of gunpowder. Several major shareholders believe that if the subscription price of the original scheme is too cheap, can it be "higher" and raise the subscription price from 4.57 yuan per share to 5.2 yuan per share.

"If 17 members of the board are approved by 2/3 members, they will not be able to oppose it." The executives said that the adjustment of the plan is not a matter of increasing money, but a question of fairness.

Minsheng Bank even tried to attract outstanding private entrepreneurs such as Guo Guangchang and Ma Yun through the refinancing to form a "private club" on the board of directors. However, Ma did not express interest in subscriptions, while Guo Guangchang wanted to directly hold Minsheng Bank.

The above executives said that the new shareholders' entry and retreat depends on the relationship with the old shareholders. "Whoever wants to enter this private club needs the recognition of the old members of the club".

Minsheng Bank has mobilized Guo Guangchang to subscribe, but did not expect Guo Guangchang to "make a big mistake". One month before the original financing scheme of Minsheng Bank, Fosun Group purchased about 80000000 shares of the bank through Nanjing iron and steel, and therefore became a unqualified investor in insider trading. "Guo Guangchang has always wanted to enter the banking industry and want to hold the Minsheng Bank." The executives said.

Shi Yuzhu lost a credit to subscribe for it. "He (Shi Yuzhu), on the one hand, applies for the private placement of Minsheng Bank. On the one hand, he is being trusted. He can not invest in Minsheng Bank's money to the Minsheng Bank. We negate this related transaction." The executives said.

Why does the "private club" of Minsheng Bank have such magic to attract "Shi Yuzhu" to increase chips? Public information display, from 2008 to March 26, 2011, several major shareholders holding subsidiaries have received comprehensive credit from Minsheng Bank. Among them, Lu Zhiqiang, vice chairman of Minsheng Bank, chairman and President of Pan Hai Group Co., Ltd., directly and indirectly holding subsidiaries, received a total of about 10 billion 60 million yuan from the comprehensive credit, financing guarantee and inheritance loans issued by Minsheng Bank. {page_break}

　　 New scheme changes

The new financing scheme is convertible bonds which are to be issued in A shares with no more than 20 billion yuan, and no more than 1 billion 651 million shares of H shares are publicly issued at the HKEx.

However, the financing of the program can be successfully launched, Minsheng Bank is cautious. In March 18th, when answering reporters' questions, the office of the board of directors of the bank said, "it is not yet certain". After the adoption of the shareholders' meeting, it will also be reported to the SFC and the CBRC.

It is not easy to terminate the original plan and introduce a financing plan that takes into account the interests of all shareholders. An independent director of Minsheng Bank said that when the original plan was adjusted, Minsheng Bank invited UBS Securities to consider various options for equity financing, including public issuance, convertible bonds with warrants and A+H rights issues.

If A+H rights issue is issued, the share price of the two tier stock market of Minsheng Bank A shares is not high relative to the net asset price per share. It is very likely that the rights offering discount is lower than the market acceptable stock discount level, which leads to the larger risk of the failure of the rights issue. If the shareholder fails to pay subscription in time during the placing period, the shareholders' rights and interests will be diluted and the interests of shareholders will be damaged. Moreover, Minsheng Bank's share rights are scattered, and the rights issue costs a lot of shareholder communication costs, resulting in higher financing costs. At the same time, if the number of final placement is not up to 70% of the proposed quantity, it may also lead to failure.

The convertible bonds with warrants can be paid not only for the purpose of repayment of principal and interest but also for the non redemption and compulsory transfer of shares. This way is uncertain for raising funds by Minsheng Bank.

The above-mentioned independent directors said that the choice of A shares can be converted into bonds, mainly based on the investors' demand for convertible bonds and the bullish space of the two level market share price of Minsheng Bank. According to the previous judgment of fund institutions and securities analysts, the current stock price of Minsheng Bank is at a low level. If the stock price is estimated by 5 more shares, there will be a 50% increase in imagination in the future. In the range of rising stock prices, the possibility and success of debt to equity swap are large. At the same time, convertible bonds have little impact on Minsheng Bank's current performance, and if the public offering is chosen at this time, the same shares will be raised much less.

The term of convertible bonds is set to be 6 years. In addition to reference to other industry's convertible bond financing practices, the main purpose is to avoid the impact of shorter term on capital. If it is a 1~2 convertible bond, there will be limited room for the stock price to rise during this period. When the bonds mature, the Minsheng Bank may face huge financial pressure on debt service.

In the public offering of H-shares, in addition to the opportunities for participation of H-share shareholders, the main reason is that H-share price is higher than that of A shares, raising the same shares and raising more capital, and H-share convertible bonds are not easy to operate.

Compared with the total amount of funds raised by the original non-public offering scheme of 21 billion 479 million yuan, although the new scheme has to go through the complex process of purchase and road show, it has no impact on the fund-raising funds, and it can raise about 29 billion yuan.

Guoxin Securities believes that the issuance of convertible bonds by the people's Bank of China and the issuance of A shares will raise the core capital by 0.65 percentage points and the capital adequacy ratio by 2.2 percentage points, supporting the development of the company in three years or so. The issuance of convertible bonds in A shares first supplemented subsidiary capital, and the capital adequacy ratio increased by 1.5 percentage points based on the 20 billion yuan scale. Convertible bonds will enter the period of equity swap after 6 years of issuance, when the conversion will supplement core capital, and the actual supplementary size will depend on the price and quantity of equity swap. {page_break}

　　 Financing trouble

In recent two years, Minsheng Bank has frequently raised funds. In November 2009, H-share was successfully issued. After deducting the Commission and exchange tax, the fund was raised to RMB 26 billion 750 million yuan. In March 2009 and June 2010, a total of 5 billion 800 million yuan of subordinated bonds and 5 billion yuan of mixed capital bonds were issued in the national inter-bank bond market. In March this year, Minsheng Bank issued a public offering of 10 billion yuan of subordinated debt in the national interbank bond market, which was approved by regulators.

Minsheng Bank asset scale growth rate far exceeds the industry average level, but high growth did not bring more valuations to Minsheng Bank. On the contrary, its average PB is at the lowest level in the industry. This is related to the extensive consumption growth of Minsheng Bank, resulting in excessive capital consumption and low dividend yield.

Because there are not many outlets, Minsheng Bank lacks relatively stable and low interest deposits, and the cost of capital has always been higher than that of the same industry. Although the loan yield is relatively high, the cost of credit in the past few years is also higher than that of other banks.

The risk weighted asset weight has always been higher than that of the same industry, which led to the expansion of capital consumption faster, low leverage further lower the level of return on assets, capital adequacy ratio decreased significantly.

In 2010, the average asset yield of Minsheng Bank was 1.09%, an increase of only 0.11 percentage points over the previous year. The annual deposit growth rate was 26%, higher than that of the loan growth rate of 20%, but the proportion of savings and demand deposits decreased by 0.89 and 2.66 percentage points respectively over the previous year.

Wu Yonggang, a banking analyst at Guotai Junan bank, said that Minsheng Bank is adjusting its loan structure and applying credit indicators to higher returns on business loans. In 2010, the commercial loan link led the rapid development of the people's livelihood retail business. The annual growth rate reached 255%, reaching 159 billion yuan, and the proportion of personal loans increased from 27% last year to 57%. However, Wu Yonggang said that although the commercial loan provided a profit growth to Minsheng Bank, the business of commercial credit business hid a greater risk in the economic downturn or downturn.

UBS Securities Analysis said that the strong growth of Minsheng Bank's business loan will continue to improve the loan yield of the bank. However, the increase in the proportion of the business loan business and the larger floating rate of the loan interest rate than the benchmark interest rate can only increase the net interest margin of the whole year by about 8 basis points, while the portfolio bottleneck (the average daily loan to deposit ratio fall) is easy to offset this positive effect.

Wu Yonggang believes that the growth of deposit growth in Minsheng Bank in 2010 is mainly due to the growth of general deposits, and the deposit structure needs to be optimized. And the bank is biased towards profit and many years of radical business style, which leads the company to pay more attention to the loan business with high return rate, and the ratio of deposit to loan is higher than that of all banks in the same industry. The loan to deposit ratio and the weighted risk weighted assets double high, resulting in the bank's capital consumption accelerated.

Since 2008 to 2010, the RMB deposit and loan ratio of Minsheng Bank has been 75%, 75.38% and 72.74% respectively, while the supervision standard of RMB deposit to loan ratio is less than or equal to 75%. The weighted risk weighted assets increased by 287 billion 74 million yuan over the previous year due to the size of group loans and the increase in off balance sheet assets.

The independent directors said that domestic banks mainly made money by making loans and spreads. And the Minsheng Banking Business "can not make money without expansion". With the introduction of the Chinese version of III, regulators have asked banks to increase the provision coverage and capital adequacy ratio, remove the subordinated debt held by the industry from the capital, and introduce the "three laws and a guideline" to reduce the risk of the financial system. Minsheng Bank needs more capital to cope with capital consumption and strict supervision of capital in business expansion.