OREANDA-NEWS. April 05, 2012. Since our bank announced the plan for tailored additional shares on March 6, investors have sent letters to and called us enthusiastically. Now, we give answers to the following questions focused on by investors, reported the press-centre of Industrial Bank:

Q: What are the Background and Main Considerations in Launching this Refinancing?

A: First, to better serve economic development. In recent years, our bank continued increasing the extension of quality credit actively in line with the direction of the state policies and brought into play our role in supporting the economic development, but our risk-weighted assets increased at a fast rate. Considering the general development trend of the Chinese economy and banking industry in the coming years, we estimate that our businesses will still keep growing stably at a fast rate. This issuance may supplement capital in an effective way, thus helping to better meet the development need of the real economy.

Second, to meet the regulatory requirements for capital. According to the spirit of the Basel III Accord, China Banking Regulatory Commission (CBRC) will elevate the regulatory requirements for the capital of commercial banks, especially for core capital, in an all-round way. For this reason, our bank will, based on the accumulation of self profits, supplement our capital in a timely manner and maintain a high capital sufficiency. This will be in favor of meeting the regulatory requirements, improving our risk resistance, and tamping the foundation for sustainable development.

Finally, to push forward the transformation of the banking business. It is a critical period for the development of our bank now. With our business scale continually growing, our board of directors has always thought of how to look for new business development models and expand new business growth points. Now, we introduce outstanding strategic investors with great strength and mutually complementary businesses, which will facilitate to bring new vigor to the development of our bank at a fast rate and push forward the sustained and steady development of our bank. This will also be helpful to improve our shareholder structure and enhance our corporate governance. Therefore, it will be of great significance in the development of IB to introduce strategic investors through issuing tailored additional shares.

Q: Why are tailored additional shares used in this refinancing?
A: First, we take into full consideration the appeals of multi ple parties. Our bank has built up a good image of being responsible to shareholders, regulatory authorities and the capital market all the time. In terms of financing methods, we give consideration to various factors including our own development, regulatory requirements, market environment and the need of economic development, etc.

Second, the influence to the capital market is relatively small. The issuing targets all aim to hold shares for a long period and the financing source is from external funds, so no blood-drawing effect will be produced against the secondary market. It is an issuing method that is encouraged by the regulatory authorities. Therefore, in choosing tailored additional shares, we take into full consideration the capital market, especially the bearing capability of small- and medium-sized investors. This show s our decision-making concept that gives great consideration to protecting investors.

Third, it is an appropriate choice of the financing methods available now. At present, there are the following methods available for supplementing capital: rationed shares, open additional shares, H-shares, tailored additional shares, and convertible bonds, etc. Of these, rationed shares and open additional shares are to be issued openly. Compared with the non-open issuance, it is required to raise funds from all existing shareholders. They would cause significant impact to the secondary market when the current market is in a downturn and overall liquidity is tight. To issue H-shares, we face the problem of transfer of state-owned shares, and the H-share market status is not desir able recently, so to issue H-shares, we may face significant shrinkage. Convertible bonds require a long period for supplementing capital, and the uncertain transfer period w ould seriously influence the promptness in supplementing core capital.

Finally, we can tamp the capital foundation in an effective way, introduce strategic investors and drive the sustainable development of our bank. Tailored additional shares require a short period for issuance and examination, so they can be supplemented to core capital directly at a fast rate and extend space for supplementing the follow-up tier 2 capital, thus meeting the regulatory requirements in a better way. At the same time, we can also take this opportunity to introduce outstanding strategic investors and push forward the cooperation between the banking businesses and insurance as well as core backbone enterprises, and this will be helpful to form new investment highlights.

Q: How will the tailored additional shared be priced?

A: In determining the price for the issuance, our bank fully considers various factors.

First, the pricing meets the regulatory requirements. The issuing price, RMB 12.73 per share, is equivalent to 90% of the average price in the 20 trading days prior to the base date for pricing (the date of announcement for the resolution of board of directors), higher than the net asset price per share given in the latest regular report audited, and it follows the pricing principle of CSRC and market practice for issuing non-open shares.

Next, the pricing takes into consideration the acceptability of investors. From the perspective of banking evaluation, the issuing price is roughly equivalent to the P/B evaluation of similar banks, reflecting the general evaluation level given by the capital market to the banking stocks in this period. This issuing price is about 1.2 times as great as the net asset value per share at the end of 2011, and it will increase the net asset value per share, thus ensuring the financing efficiency to the largest extent within the scope acceptable to investors.

Third, the pricing represents compensation to the risks of liquidity. There are various factors influencing share prices, so it is hard to forecast the future fluctuation and tendency of share price s accurately. The subscribers of non-open shares issued at the fixed price need to promise a lock-up period of three or more years. Compared with the investors in the secondary market, they need to bear bigger risks of liquidity and cost of funds. Therefore, it is reasonable to have a proper discount.

After completion as scheduled, this issuance of tailored additional shares will have a positive influence on all key indices. The core capital sufficiency and total capital sufficiency of our bank will be improved, and the newly-increased credit scale and risk asset scale will increase significantly each year, so the capital base for our bank to make profits will be further enhanced.

Q: What internal and external procedures are required for the issuance of tailored additional shares?

A: This non-open issuance was deliberated and passed by the 9th session of the seventh board of directors of IB, and it still needs to be deliberated and approved by the general meeting of IB shareholders in April. Then, it may be implemented following the approval or ratification of China Banking Regulatory Commission and China Securities Regulatory Commission.

Q: What are the investment highlights of IB?

A: Our bank has a good market reputation and investment value, which are mainly manifested in the following aspects:

First, excellent shareholder return index. From the perspective of shareholders, priority is given to the level of return. For nine years, our bank has kept the yield of net assets at over 20%, and the annual mean profit growth rate at over 40%. Since our IPO, the yield of net assets has been kept above 24%, and in 2011, it reached 24.68%, ranking towards the front among similar banks.
Second, there is broad prospect for the growth of banks. As a national joint-stock commercial bank, IB has business licenses which are rare and nationwide business outlets. With broad banking business fields and radiating integrated operation, we have established significant competitive edges in many business fields. Based on previous data, our growth rate in key business indices is in the leading echelon in the banking industry.

Third, we have outstanding risk management capa bilities and long, stable and excellent asset quality performance. The non-performing loan ratio of our bank has kept decreasing for years, and the ratio at the end of the third quarter last year was only 0.34%, significantly lower than those of other listed banks.

Fourth, our differentiated business features have been formed preliminarily. Our bank has kept extending from conventional business fields to emerging business fields such as retail finance, wealth management, investment banking, assets trust, and market trading, and preliminarily established our features and brand in market segments such as cooperation between banks, green finance, and precious metal trading agency.

Fifth, we have a sturdy, excellent, professional, and market-oriented management team. In our board of directors and board of supervisors, there are both senior experts from domestic and overseas financial institutions and authoritative cholars from universities and research institutes. Our executive team is rooted in IB and each member has on average over 20 years of working experience in commercial banks. The team has a stable structure and clear echelons, with a sturdy but flexible operating style which is market-oriented.

Sixth, we have an advanced corporate governance concept and scientific and standardized governance mechanisms. Shareholders of IB may fully exercise their rights.

There are many other investment highlights in our bank, which attract different investors in various ways. We believe that, with our constant improvement in operati ng capability, our bank will display itself to the capital market continuously and win recognition.

Q: After the issuance, in what areas will PICC and IB cooperate?
A: PICC and our bank will carry out open and all-round business cooperation. As a famous insurance finance group in China, PICC engages in many business fields such as insurance, trusts, funds, and asset management, and have obvious complementary and synergetic effects with a bank in terms of funds, channels and business. Facing financial disintermediation, diversified allocation of residents' assets, and market-oriented interest rates in the long term, our bank is introducing an outstanding strategic investor like PICC, and this will bring broad space for the diversified business strategy of IB.

The strategic cooperation between the two parties is an attempt for the cooperation between a bank and an insurance company under the current financial system, aiming to provide better and more diversified services to the customers of our bank and PICC. Following the open principle, the cooperation between the two parties is not exclusive. In the future, both parties will continue developing cooperation with their own original customers and other banks/insurance companies.

Q: What plans are being considered regarding the supplementation of capital in the coming years?

A: In supplementing capital in the future, our bank will first consider meeting the needs of multiple parties and realizing long-term sustainable development. Next, we will ensure that our present and future business development matches the total capital demand and available capital, and take into full consideration regulatory policies for capital and possible changes. Third, we will choose appropriate capital tool portfolios, raise capital and manage the balance so as to highlight the investment value of IB.

Q: Which specific measures will be taken to save capital?

A: First, our bank will continue to guide all businesses to capital intensive development, intensify the management over risk assets, and make active adjustment to business structures according to different business environment s and profit performances so as to improve the efficiency in allocating risk assets.

Next, our bank will improve our management of economic capital, perfect the basic data for economic capital, enhance the technique in allocating economic capital, further escalate the capability to measure and allocate credit risks, and elevate the management value of economic capital by optimizing the assessment system and perfecting assessment management continuously.

Third, our bank will attach importance to improving our capital structure, bring into play the leverage role, and research other innovative supplementing method for tier 1 capital tools under the precondition of ensuring that the core tier 1 sufficiency meets the regulatory requirements; in addition, we will supplement tier 2 capital by issuing subordinated debt and other methods.