HSBC to fully back BoCom rights issue

HSBC signalled its strength and further commitment to the East after spending $921m (£639m) to maintain its shareholding in China’s Bank of Communications (BoCom) after it launched a rights issue.

The UK banking giant currently owns 19 per cent of BoCom and once the $4.8bn capital raising exercise is complete, HSBC will have invested $3.42bn in the bank.

Funds for the investment in BoCom’s rights issue will come from HSBC’s own resources, with the bank agreeing to subscribe for 1.4bn shares at HK$5.14 a share.

HSBC maintained that the move was a sign of its financial strength as it continues to maintain a tier one capital ratio of 11.1 per cent.

The move will reinforce its position as a leading bank in China at the same time, according to the bank.

Chief executive and chairman Michael Geoghegan said: “[BoCom] is our strategic banking partner in mainland China and we are very pleased with the progress we have made together.”

BoCom, which scaled back the size of the rights issue by more than 20 per cent, is raising the funds in a bid to replenish its capital ratios.

It is understood that the size of the rights issue was slashed by BoCom because of a weak market and the flotation of state peer Agricultural Bank of China.

HSBC took up its shareholding in BoCom in 2004 when it initially spent $1.8bn buying out the highest possible stake in the bank permitted by Chinese regulators.

The recent move by HSBC, coupled with Geoghegan’s relocation to Hong Kong in February, is a further sign that the bank is shifting from the West to the East.