|
China Merchant Bank launches rights issue from its headquarters |
China Merchants Bank (CMB) has become the first Chinese company to do a rights issue to US investors, as China’s banks move to address regulatory concerns about capital adequacy.
To boost its capital position, CMB undertook a $3.2 billion offering comprising A-share and H-share tranches and an international tranche – which included a private placement in the US.
“This is a positive move that shows the development of capital markets in China,” said James Lin of Davis Polk, who advised CMB on the deal. “This has set a precedent for Chinese companies doing rights offerings, giving them the flexibility to offer to US investors.”
Although there are no rules in Hong Kong requiring the equal treatment of shareholders, CMB decided to conduct an international offering (alongside a dual A-share/H-share offering) as approximately 40% of its shareholders are in the US.
Until now, deals have placed the offering documents with a CCass (Hong Kong’s Central Clearing and Settlement System) participant which then forwarded these to US participants. But CMB took the view that this amounted to an offering to US shareholders (and thereby subject to US securities laws).
Instead, CMB limited its offering to a group of Qualified Institutional Buyers (QIBs). The bank identified a number of QIBs to offer to, and evaluated the applications of self-identifying QIBs.
When it was satisfied that that the buyers met the QIB criteria, CMB distributed the instruction and representation letters. The latter included a so-called big-boy letter stating that the QIB would undertake analysis of the issuer and bear the risk. Offering documents were then sent out.
“Further rights offerings will depend on government approval,” said Lin. “However, Chinese banks are keen to shore-up their capital base. Rights issues were not a common capital raising technique for Chinese companies until recently but the technology is now there for more.”
Davis Polk advised CMB on US law, with Herbert Smith counselling on Hong Kong law and Jun He assisting on PRC matters. Freshfields Bruckhaus Deringer advised the underwriters on US and Hong Kong law, alongside Commerce & Finance as PRC counsel.