Will ICBC's upcoming bond sale

be enough to support future acquisitions?

Industrial & Commercial Bank of China, the world's most profitable bank, may sell as much as 100 billion yuan ($14.6 billion) of bonds after domestic loan growth and acquisitions overseas drained capital.

The Beijing-based lender, which topped closest rival HSBC Holdings after profit soared 57 percent in the first half, plans to sell the subordinated debt in batches by 2011, it said in a statement to the Shanghai Stock Exchange. Shareholders will vote on the plan on Oct. 27.

Annual economic growth of more than ten percent bolstered corporate loans and services to China's growing number of wealthy people, helping ICBC more than double profit since 2005. Chairman Jiang Jianqing has spent more than $6 billion making acquisitions in Indonesia, Macau and South Africa in the past year, tripling the share of profit coming from overseas.

“The management is preparing for the rainy days and investment opportunities that may emerge abroad, which will easily exhaust capital,” said Yuan Lin, a Beijing-based analyst at BOC International. “ICBC's current capital position is ample to support the domestic growth.”

ICBC's capital adequacy ratio, a key measure of financial strength, fell to 10.33 percent as of June 30, down from 12.23 percent at the end of last year.


Debt Sales
The bank said first-half profit surged to 64.5 billion yuan as a focus on domestic lending helped it avoid the global credit crisis that led to more than $500 billion of writedowns and losses at financial firms since the beginning of 2007 because of the subprime meltdown.

China's government, grappling to contain the world's largest foreign-currency reserves that soared to a record $1.81 trillion on June 30, has been encouraging state-owned companies to expand overseas.

ICBC, having raised $22 billion in the world's largest initial public offering in October 2006, is taking advantage of falling valuations of peers overseas to make acquisitions. The bank in October bought a 20 percent stake in South Africa's Standard Bank Group for $5.4 billion in the biggest overseas acquisition by a Chinese bank.


Bond Redemption
The company's debt issuance plan comes as it prepares for a redemption of bonds sold earlier and seeks mergers and acquisitions overseas, board secretary Gu Shu said.
ICBC, which controlled 17 percent of the nation's banking assets, received approval in July 2005 to sell up to 100 billion yuan of bonds before the end of 2007. The lender sold 35 billion yuan of callable subordinated debt in 2005 and it has the right to redeem 22 billion of the debt as early as 2010.

Subordinated debt is considered supplementary capital. In the event of bankruptcy, subordinated debt holders receive payment only after other debt claims are paid in full.

ICBC is now the world's biggest bank by market value, three years after receiving a $15 billion government bailout. It has 16,476 branches nationwide and 112 branches outside China. It also has 170 million personal customers, equivalent to the populations of Russia and Canada combined.


Now considered as the world's most profitable bank, how do you expect ICBC to perform in both domestic and international markets? Can the lender sustain its momentum or will it shift gears soon?