SHAREHOLDERS of China Minsheng Banking Corp. have rejected a proposal designed to boost the bank’s equity capital, leaving management in need of another plan to meet strict new capital adequacy requirements.

    Minsheng, China’s largest non-State bank by assets, had proposed lowering the conversion price of convertible bonds to encourage holders to swap their bonds for shares, thereby raising its capital adequacy ratio.

    That would have left Minsheng in a better position to meet new capital requirements that the banking regulator began phasing in last year in line with global rules known as Basel III.

    But shareholders would have seen the value of their share holdings diluted by the proposal and so voted it down late Thursday. Such rejections are rare in China.

    The “result reminds the bank’s management that it needs to focus on the efficient use of capital as it expands. It should not invest blindly or operate as freely as it did before,” a representative of a large shareholder said.

    Minsheng had roughly 20 billion yuan (US$3.26 billion) worth of convertible bonds outstanding after less than 0.1 percent had been swapped for shares as of the end of last year.

    Shares of Minsheng have fallen about 36 percent since early last year on concern over shrinking interest margins and rising bad debt, reducing the attractiveness of conversion.

    Even if the bank reduced the conversion price, bondholders might not have bitten, said the representative of a large shareholder.

    “We think that this method will not necessarily raise capital,” said the representative.

    The outcome of the vote reflected the sentiment of numerous shareholders and not just the sentiment of those with large holdings, the representative said.

    With China’s economic growth slowing and demand for new bank shares waning, banks can no longer expand their balance sheets as fast as they once did, said the representative. (SD-Agencies)