Why has China Construction Bank Approved to Sell $5.8 Billion of Bonds?

China Construction Bank Corp., the nation's second-largest lender, said it received regulatory approval to raise as much as 40 billion yuan ($5.8 billion) selling subordinated bonds to boost capital.

The bond sale, endorsed by shareholders in June, was approved by the China Banking Regulatory Commission and the People's Bank of China, the Beijing-based bank said in a statement to the Hong Kong stock exchange today.

China Construction Bank will sell bonds to institutional investors on the domestic market, according to today's statement, scrapping an earlier plan to issue up to 5 billion yuan in Hong Kong as part of the sale.

China is urging domestic lenders to strengthen capital and guard against credit risks as the world's third-largest economy cools. The average capital adequacy ratio of Chinese banks climbed to 8.4 percent in 2007, above the regulatory minimum for the first time. China Construction Bank's capital adequacy ratio stood at 12.1 percent as at Sept. 30, down 0.48 percentage point from the beginning of last year.

China Construction Bank plans to raise another 80 billion yuan of subordinated bonds over the next two years, it said on Jan. 16. This sale is subject to shareholder and regulatory approvals.

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.

Shares of China Construction Bank fell 2.6 percent to close at HK$3.70 in Hong Kong today.

After so much news about Chinese banks being a safe haven for investors, is this the end of the dream?