(Yicai) March 31 -- Four of China's big six state-owned commercial banks saw their shares gain after unveiling plans for a combined recapitalization of CNY520 billion (USD71.7 billion), with the finance ministry as the main investor.

Bank of China [SHA: 601988] finished 1.8 percent higher at CNY5.60 (77 US cents) a share in Shanghai today. Bank of Communications [SHA: 601328] added 1.2 percent to CNY7.45, China Construction Bank [SHA: 601939] jumped 3.6 percent to CNY8.83, and Postal Savings Bank of China [SHA: 601658] inched up 0.2 percent to CNY5.21.

BOC, BOCOM, CCB, and PSBC will raise up to CNY165 billion, CNY120 billion, CNY105 billion, and CNY130 billion, respectively, through private placements on the Shanghai Stock Exchange, they announced yesterday. The finance ministry will be the main buyer, purchasing CNY500 billion of the shares, or 96 percent.

The Government Work Report delivered by Chinese Premier Li Qiang to the National People's Congress early this month proposed the issuance of CNY500 billion of special treasury bonds to support capital replenishment at large state-owned commercial banks.

BOCOM’s share sale will also involve its state-owned stockholder China National Tobacco Corporation and its wholly-owned unit, while that of PSBC will involve China Mobile and China State Shipbuilding Corporation, two of its state-owned shareholders.

Each of the share placements is priced at a premium to the closing price on March 28, with the highest being PSBC’s at 21 percent.

The ministry’s capital injection can increase the capital adequacy ratio of the four banks by about 0.5 percentage point each, according to Dong Ximiao, chief researcher at China Merchants Union. Ming Ming, chief economist at Citic Securities, told Yicai that the move is a proactive measure  in anticipation of potential future problems rather than a passive risk response.

The core Tier 1 capital adequacy ratios of the four banks are all higher than the minimum required. As of Dec. 31, BOC’s was 12.2 percent, while those of BOCOM, CCB, and PSBC were 10.24 percent, 14.48 percent, and 9.56 percent, respectively.

The two other major state-owner commercial banks -- Agricultural Bank of China and Industrial and Commercial Bank of China -- have not yet unveiled any such private placement plans. Their core Tier 1 capital adequacy ratios were 14.1 percent and 11.42 percent, as of the end of last year.

If calculated based on an eight-fold multiplier effect, the ministry’s contribution can help the four banks lift their combined lending capacity by CNY4 trillion (USD551.5 billion), strengthening their efforts to serve the real economy, Ming said.

The move will also improve their resilience to risk, provide a safety cushion for them to help the troubled real estate sector resolve debt risks, and help local government financing platforms in transforming their business, Ming also noted.

Even though this financing plan may dilute the earnings per share of minority shareholders in the short term, the better capital adequacy ratios will enhance the banks' return on equity and safety margins in the long run, lifting the expectations of minority shareholders, Ming added.

Editors: Tang Shihua, Futura Costaglione