Minsheng Fund-Raising Shift Reveals Govt Angst

Interesting development at Minsheng Bank (HKEx: 1988; Shanghai: 600016), which has suddenly shifted gears in its plans to raise some $4 billion in fresh funds to replenish its coffers. (English article; Chinese) Now, instead of flooding a shaky Shanghai market with yet more new shares, Minsheng is going to issue convertible bonds at home, and instead flood Hong Kong with new shares. In my mind, this signals two things: one, Chinese regulators are growing increasingly worried about a big sell-off in Shanghai if and when the housing correction starts in earnest; and two, the banks are looking increasingly vulnerable when that happens. That said, banking stocks might be a good one to avoid in this climate. At the same time, some of these convertible bonds that Minsheng and others like ICBC (HKEx: 1398; Shanghai: 601398) have issued might not be such a bad way to gain exposure to these companies if a meltdown fails to materialize or isn’t as severe as many fear. Outright failure of any of these banks, especially the biggest ones, seems unlikely as the government has shown it’s not about to let any of these guys go under. Too big to fail isn’t just for Western banks, or so it seems.