China government approves banks’ fund raisings

Lenders given go signal to raise multibillion dollars to fill up huge capital shortfall.

China's government has started approving a series of multibillion-dollar fund raisings by its banks despite souring market conditions—even as more domestic lenders line up to tap investors for much-needed capital.

On Friday, China's securities regulator approved a proposal by Bank of Communications Co., China's fifth largest bank by assets, to raise as much as 42 billion yuan ($6.15 billion) in a rights issue in Shanghai and Hong Kong. That came after the regulator gave the go-ahead to Bank of China to sell 40 billion yuan ($5.85 billion) of bonds convertible into Shanghai-listed shares. Neither bank has announced a timeline for their offerings, but the approvals mean they could take place in the next couple of months.

The approvals come as even more lenders put forth capital-raising plans—adding to concerns that there may be more demand for funds than investors can supply. China's banks have announced plans to raise more than $70 billion ($10.25 billion)—including an expected initial public offering by Agricultural Bank of China Ltd. that could be as large as $30 billion ($4.39 billion)—in an effort to replenish the capital levels they ran down after massively expanding new loans last year to support the economy.

But China's stock markets already are spooked by Europe's sovereign debt crisis and investor concerns that Beijing's efforts to cool a property bubble may harm economic growth. On Friday, the Shanghai Composite Index ended down 0.01%, at 2655.77, down about 19% this year. Shanghai-listed shares of Bank of Communications have fallen 25% this year, while shares of Bank of China are down about 10%.

View the full story in the Wall Street Journal.