By Wang Zhenghua (China Daily)
Updated: 2008-02-28 09:21

Shareholders have approved Shanghai Pudong Development Bank's controversial share sale plan, pending regulatory clearance.

Related readings: Pudong Bank plans $5.6b share sale Pudong Bank profit soars 64%

But the securities regulator is exercising caution at a time when weakened market confidence has dragged down the Shanghai Composite Index by 24 percent since mid-January.

"The China Securities Regulatory Commission has asked the bank's leaders, including Fu Jianhua and Ji Xiaohui, to give details of the share offering," a source said Wednesday.

The securities regulator earlier this week warned listed companies to hold off on excessively large issues of additional shares that could undermine the stock market, a move widely seen as part of government efforts to boost investor confidence.

Analysts said it is uncertain whether regulators will approve the move, rumored as a bid to raise funds to buy into smaller Shanghai Bank.

The Shanghai-listed bank opened slightly lower yesterday than Tuesday's close on news of the shareholder decision, but later rebounded to close at 40.62 yuan per share, up 0.32 percent.

The bank also signed a memorandum of understanding yesterday with Citigroup, which owns about 4 percent of Pudong. The agreement covers collaboration on investment banking, helping domestic companies to list overseas, overseas mergers and acquisitions, foreign investment and investing abroad.

A shareholder meeting late on Tuesday approved the bank's proposal to issue no more than 1 billion new shares.

Earlier the bank said it was considering raising 40 billion yuan in a share sale to enhance its capital adequacy ratio, which fell to 8.4 percent - near the required minimum level of 8 percent - by the end of the third quarter last year after rapid business expansion.

But analysts said the bank needs funding to invest in Shanghai Bank, which is expected to play a key role in the city's efforts to form a financial holding group.

"It doesn't need such a large sum to improve its capital adequacy ratio," Jin Lin, an analyst at Everbright Securities Co, said. "Roughly 10 billion yuan will help the rate grow to 10 percent."

The bank said in an unaudited preliminary report that its net profit jumped 64 percent to 5.5 billion yuan last year, aided by strong loans growth.