(Yicai Global) Sept. 17 -- The Industrial and Commercial Bank of China, the world's biggest bank by assets, plans to raise USD2.9 billion by issuing offshore preference shares to boost its Tier One capital which has taken a knock from the Covid-19 pandemic's ravaging of the global economy.

Dividends will be paid out in US dollars on Sept. 23 each year, at which time the next year's interest rate will be determined, the lender said in filing to the Hong Kong stock exchange today. This year's rate is 3.58 percent.

The shares are perpetual with no expiry date. Shareholders are under no obligation to redeem or repurchase them, the Beijing-based lender said. The bank, though, has the right to redeem them as per the sale terms and conditions. Should the survival of the bank be at stake, it can also convert the preference shares to H shares without the prior approval of the shareholders as long as the regulator gives the greenlight, it added.

The preference shares are likely to get a Ba1 rating from US credit rating agency Moody's, it said. The bank itself has a credit rating of A1 from Moody's and A from S&P Global Ratings.

The ICBC has taken a hit from the economic fallout caused by the Covid-19 pandemic. Net profit fell 11.35 percent in the first half year on year to CNY148.1 billion (USD21.9 billion), despite a 1.25 percent rise in revenue, according to the bank’s semi-annual report. This was due to a 26.5 percent increase in losses from asset devaluation.

The lender's asset quality has declined accordingly but is still within safe territory. Its core Tier-1 capital adequacy ratio, which is the ratio of a bank's capital to its risk, fell to 12.7 percent at the end of June from 13.2 percent at the end of last year, and the total capital adequacy ratio decreased to 16 percent from 16.77 percent.

The core capital adequacy ratio of commercial banks should not be lower than 8.5 percent, while the total capital adequacy ratio shall not be less than 10.5 percent, according to the international banking recommendations laid out in the Basel Accords.

Editor: Kim Taylor