(Yicai) Sept. 7 -- Eight central state-owned financial enterprises will increase their capital by a total of CNY360 billion (USD53.6 billion), with the Ministry of Finance set to contribute CNY300 billion, to supplement their core tier-one capital and enhance their ability to serve the real economy and prevent and control risks.

This round of capital replenishment was the largest in China’s financial system in recent years. The market had long anticipated the issuance of special treasury bonds to finance the capital replenishment of large state-owned banks this year, as clearly specified in this year’s government work report in March. Capital injections into insurance institutions were also expected.

The capital replenishment work of large commercial banks is accelerating, and that of large insurance firms has been put on the agenda, China’s financial regulatory authorities said at a State Council Information Office press conference in May last year.

Industrial and Commercial Bank of China and Agricultural Bank of China yesterday unveiled private placements, planning to issue Chinese mainland-listed shares to specific investors, such as China National Tobacco, aiming to raise CNY100 billion and CNY160 billion, respectively. The MOF will buy CNY70 billion (USD10.4 billion) of ICBC shares and CNY130 billion of ABC shares.

The capital injection arrangements of ICBC and ABC are within expectations, as the four other large central state-owned lenders already completed similar moves last year.

China Life Insurance Group, People’s Insurance Company of China, and China Taiping Insurance Group said in their statements yesterday that the MOF will inject CNY35 billion, CNY15 billion, and CNY7 billion (USD1 billion), respectively, into them. Moreover, the finance ministry will inject CNY30 billion into ‌China Export-Import Bank of China and CNY10 billion into China Export & Credit Insurance.

China Re Group will carry out a CNY3 billion private placement, issuing about 2.26 billion shares at CNY1.33 (20 US cents) apiece, higher than the price of its Hong Kong-listed shares in the secondary market, exclusively to the MOF.

After this injection, the CNY300 billion capital can leverage about CNY4 trillion (USD596 billion) asset expansion, enhance direct lending, merger, and acquisition capabilities, effectively support the real economy and prevent financial risks, according to calculations by China International Capital Corporation.

Moreover, the injection will raise the core tier-one capital of ICBC and ABC by 0.6 percentage point on average, slightly lower than the 1 percentage point in the first batch, per CICC data. Injecting CNY300 billion is equivalent to 0.7 year of banks’ internal capital replenishment and 2.2 years of dividends.

ICBC and ABC said in their announcements that the issuance price will not be lower than the average price of their Chinese mainland-listed shares over the 20 trading days before the pricing benchmark date. But because their stock prices have traded below net asset value for a long time, concerns have arisen about private placement pricing and the dilution of shareholder equity.

The two lenders noted that after the private placements are completed, their net assets will rise, which will dilute the return on net assets to some extent in the short term. But in the long run, the benefits of raising funds to support the development of various businesses will gradually emerge, positively impacting their performance.

Meanwhile, both ICBC and ABC have disclosed specific measures for spreading out the immediate impact of this issuance, including strengthening the management of raised funds and improving the profit distribution system.

“Given the absolute large size of ICBC and ABC, the price-to-book ratio calculated based on their current stock price and net asset value after excluding 2025 dividends is around 0.8 to 0.9 times,” said Wang Yifeng, chief financial analyst at Everbright Securities. “It is expected that their private placement prices will be close to the net asset value and the dilution effect will be limited.”

Editor: Futura Costaglione