China’s banks rush to sell subordinated debt
(30 November 2012 – China) China’s banks are in a rush to sell a staggering subordinated debt of US$24 billion (A$22.9 billion).
The January deadline for the Basel III reforms led to the rush by Chinese banks to expand their capital base.
Unless banks unload their subordinated debt, any new issue from 2013 onwards will be subject to the new and tougher regulations on subordinated debt.
Basel III standards require subordinated debt, which is part of Tier 2 capital, not to offer redemption incentives or issue step-ups to buyers.
Under Basel III, funds raised by banks through subordinated bonds won't be counted as part of their capital base, unless investors are willing to write down the value of the debt entirely or allow the bonds to be converted into shares, according to regulatory and banking sources.
This means sub-debt investors, more often domestic financial institutions and insurers who prefer to be ranked above ordinary shareholders in case of a default, will have to reconsider their risk-assessment models when making such investments.
Agricultural Bank of China (ABC) intends to sell US$8 billion of bonds while China Construction Bank (CCB) will unload US$6 billion of debt by the end of this year.
Unless banks unload their subordinated debt, any new issue from 2013 onwards will be subject to the new and tougher regulations on subordinated debt.
Basel III standards require subordinated debt, which is part of Tier 2 capital, not to offer redemption incentives or issue step-ups to buyers.
Under Basel III, funds raised by banks through subordinated bonds won't be counted as part of their capital base, unless investors are willing to write down the value of the debt entirely or allow the bonds to be converted into shares, according to regulatory and banking sources.
This means sub-debt investors, more often domestic financial institutions and insurers who prefer to be ranked above ordinary shareholders in case of a default, will have to reconsider their risk-assessment models when making such investments.
Agricultural Bank of China (ABC) intends to sell US$8 billion of bonds while China Construction Bank (CCB) will unload US$6 billion of debt by the end of this year.
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