UPDATE 1-China Merchants Bank sets 1.3-for-10 rights issue

Published: 22 Feb 2010 18:45:39 PST

* To issue 1.3 shares for every 10 existing shares

* Merchants Bank to price rights issue up to 8.85 yuan -CICC

* Rights issue to replenish capital, support growth (Adds analyst quotes, more details)

SHANGHAI, Feb 23 - China Merchants Bank, the country's sixth-biggest lender, said on Tuesday that it had set a rights issue with a ratio of 1.3-for-10 for both Shanghai-listed A shares and Hong Kong-listed H shares in its maximum $3.22 billion fund-raising plan.

That would price the lender's new shares at as much as 8.85 yuan per share, representing a 44 percent discount to its yuan-denominated A shares and a 47 percent discount to its H shares, China International Capital Corp (CICC) said in a note to clients.

Shares of China Merchants fell 2.61 percent to 15.32 yuan in morning trading, compared with a 1.9 percent fall in the benchmark Shanghai Composite Index.

China Merchants Bank said earlier this month that it won regulatory approval to raise up to 22 billion yuan ($3.22 billion) via a rights issue, joining other Chinese lenders in a rush to bolster balance sheets after last year's lending spree weakened finances and prompted regulators to tighten capital rules.

"China Merchants Bank is short of capital after its expensive acquisition of Hong Kong's Wing Lung Bank and rapid loan expansion in 2009," said Qiu Zhicheng, analyst at Guosen Securities. "The fundraising would ease the bank's mid-term capital pressure."

The rights issue would boost China Merchants Bank's capital adequacy ratio (CAR) to 12.2 percent and its core capital adequacy ratio to 8.4 percent, supporting growth over the next two years, CICC said.

The bank's CAR stood at 10.54 percent as of Sept. 30, below the 12 percent minimum required for small- and mid-sized lenders. ($1=6.83 yuan)