Caixin reporters learned that after Minsheng Bank announced the completion of a 10 billion yuan perpetual bond issuance recently, according to the arrangement, CM Bank will also complete a new round of perpetual bond issuance on November 5. According to Wind, this is the first issuance by a bank since Hua Xia Bank issued perpetual bonds on September 27, with a new case a month later. Next, Ping An Bank and Bank of Suzhou will respectively complete new perpetual bond issuances on November 7 and 8.

Industry insiders told Caixin reporters that the sources of bank capital replenishment can be divided into two types: one depends on internally generated funds accumulated from profits; the other is through external channels such as tier 2 capital bonds, perpetual bonds, convertible bonds, etc. Banks issuing perpetual bonds, apart from some banks facing significant capital replenishment pressure, is also to further strengthen their capital base. After sufficient capital replenishment by banks, not only can it enhance the banks' ability to resist risks, meet regulatory requirements, but also strengthen the bank's ability to further increase credit lending and support the real economy.

Intensive Capital Infusion: Listed Banks Relay Issuances of Perpetual Bonds

Minsheng Bank announced on November 5 that it successfully issued 10 billion yuan of undated capital bonds. The bonds were booked on October 30, 2024, and issued on November 1, 2024. The issuance size is 10 billion yuan, with face interest rates adjusted in phases, every 5 years is an interest rate adjustment period, the face interest rate for the first 5 years is 2.73%, with the issuer having redemption rights commencing at the 5th year and each subsequent interest payment date.

Caixin reporters found that Minsheng Bank is another example of a bank issuing perpetual bonds a month later. Looking back, the last bank to issue tier 2 capital bonds was also Hua Xia Bank, completing a 20 billion yuan perpetual bond issuance on September 27.

After the intensive disclosure of the third-quarter reports in October, there was a surge in perpetual bond issuances by listed banks in November. According to Wind, CM Bank issued 30 billion yuan of perpetual bonds on November 1, completed the issuance on November 5; Ping An Bank also issued a new round of perpetual bonds on November 5, with the issuance deadline on November 7; Bank of Suzhou issued a new round of perpetual bonds on November 6, with the issuance deadline on November 8.

Perpetual bonds combine characteristics of stocks and bonds, with no explicit maturity date, the issuer can decide whether to defer interest payments (deferral is not considered default), and the issuer has no obligation to redeem the bonds, serving as a debt-to-equity tool. Compared to other tier 1 capital replenishment tools, perpetual bonds have advantages such as the issuing entity not being restricted by whether it is listed, short approval times, and the ability to design writedown clauses." A banking source told Caixin reporters that perpetual bonds are an important tool for commercial banks to replenish capital.

"The funds raised in this bond issue will be used to supplement the bank's other tier one capital in accordance with applicable laws and regulatory approvals," said minsheng bank. Minsheng Bank's third-quarter report shows that as of the end of the reporting period, the Group's core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio, and capital adequacy ratio were 9.30%, 10.76%, and 12.66%, respectively, with increases of 0.02, 0.19, and decreases of 0.48 percentage points from the end of the previous year.

The issuance pace is influenced by various factors. The issuance of perpetual bonds by banks this year has exceeded the total for last year.

In addition to perpetual bonds, banks are also "infusing blood" through other different methods such as Tier 2 capital bonds. Statistics show that since October, four banks have collectively completed the issuance of 41.35 billion yuan in Tier 2 capital bonds. Looking at a longer timeline, besides no banks issuing perpetual bonds in the past month, there were also situations in January and February this year where no banks issued perpetual bonds. In addition, in March this year there were also instances where no banks issued Tier 2 capital bonds.

Perpetual bonds and Tier 2 capital bonds are jointly referred to as "second perpetual bonds." What factors influence the issuance pace of "second perpetual bonds"? GTJA analyst Liu Yu previously stated that based on historical data, the issuance pace of second perpetual bonds is mainly affected in terms of quantity by changes in their own capital adequacy ratio and the balance management system, which has a certain leading nature. Adjustments to the issuance pace are also made considering market interest rates, but such impacts may often have a certain lag.

"Perpetual bonds are important capital replenishment tools for commercial banks, and the purpose of issuance is to meet regulatory requirements for the capital adequacy ratio of commercial banks." Banking industry insiders point out that in terms of the types of issuers, there is a relatively higher number of perpetual bond issuances by small and medium-sized banks, while the issuance size of state-owned large banks and joint-stock banks is relatively larger. Data shows that the scale of perpetual bond issuances by banks this year, reaching 581.2 billion yuan, has far exceeded last year's full-year level of 272.2 billion yuan.

China Everbright Bank's Macro Researcher Zhou Maohua stated in an interview with Caixin that banks actively issue perpetual bonds mainly due to the complex macroeconomic environment in recent years, where banks continue to offer concessions to the real economy leading to an increase in external financing demand. Perpetual bonds can directly supplement core capital efficiently. Additionally, with the continuous efforts of domestic policies to stabilize growth and maintain reasonable market liquidity, financing rates are relatively attractive.

"Perpetual bonds are generally adjusted every five years, and the perpetual bonds issued by banks in 2019 will face the first redemption period this year." A bank brokerage analyst also stated that issuing perpetual bonds can effectively supplement a bank's other tier one capital, improve the capital adequacy ratio, meet regulatory requirements, and enhance risk resistance capabilities. Furthermore, investors' understanding and acceptance of perpetual bonds are continuously improving, and the market demand is gradually expanding, providing a favorable market environment for banks to issue perpetual bonds.