Bank of Jinzhou discloses recap details

BANK OF JINZHOU has disclosed more details of a recapitalisation plan led by China’s central bank, which will see it sell assets at a deep discount to book value while receiving steady long-term income from state-backed debt instruments. 

Beijing Chengfang Huida Enterprise Management, ultimately controlled by the People’s Bank of China, has agreed to buy certain of the Liaoning-based lender’s credit assets and other assets with an original book value of Rmb150bn (US$21bn) for Rmb45bn, under a framework disposal agreement.  

The unaudited net loss attributable to the disposed assets for the financial years of 2018 and 2019 was approximately Rmb6.143bn and Rmb8.078bn, according to a stock exchange filing on April 3.Alongside that, Bank of Jinzhou will subscribe for free to 2.25% 15-year debt instruments with a face value of Rmb75bn issued by a partnership controlled by Liaoning Financial Holding Group, which is wholly owned by Liaoning province’s finance department. The bank is expected to receive principal repayment and interest of not less than Rmb5bn per year. 

The asset disposal and debt subscription are part of a plan whose main pillar is a private share placement. The three-part plan was announced last month, but only the full details of the share placement had previously been disclosed.The overall rescue plan is still subject to shareholder and regulator approval.In a March 10 filing, the city commercial bank said Chengfang Huida and Liaoning Financial had agreed to subscribe to 6.2bn domestic shares at Rmb1.95 each for a total Rmb12.09bn. 

This will leave the pair with a combined 44.34% stake in the bank, not taking into account the potential conversion of offshore preference shares.It is estimated that the overall financial effect of the asset disposal and the debt instrument subscription will incur an unaudited impairment reserve expense of Rmb30bn. However, Bank of Jinzhou said its capital adequacy ratio and asset quality will be greatly improved, making the framework disposal agreement “fair and reasonable and in the interests of the bank and the shareholders as a whole”. 

Citigroup in a note said that the de-risking initiatives will greatly reduce Bank of Jinzhou’s risk-weighted assets and are likely to improve its capital ratios. However, while it is credit positive for the bank, Citigroup still view that the resumption of coupon payments on the bank’s US$1.496bn 5.5% offshore AT1s is unlikely in the near-term.