HONG KONG—China Construction Bank Corp., the country’s second-biggest lender, is planning to issue an offshore bond to help it meet tougher capital requirements and diversify its investor base, people familiar with the situation said on Thursday.

CCB’s move comes at the early stage of what is expected to be a multi-year wave of international bond issuance by Chinese lenders, which are facing slower earnings growth and need to raise capital and strengthen balance sheets ahead of a projected rise in bad loans.

China’s four biggest state-owned banks by assets—CCB, Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Agricultural Bank of China Ltd.—have won board approval to issue a total of 270 billion yuan (US$44.1 billion) in debt securities in the next two years.

Industrial & Commercial Bank of China (Asia) Ltd., ICBC’s Hong Kong unit, last week issued the first dollar-denominated bond in Asia that complies with Basel III bank-capital rules.

CCB hasn’t determined the size of its offering or the currency, the people said. It is considering a yuan-denominated offering but the small pool of yuan outside China would limit its size, so it may opt for dollars, which would also be more appealing to international investors, they said. The bank is hearing pitches from investment bankers and is in the process of picking bookrunners, they said.

CCB couldn’t immediately be reached for comment.

The major Chinese lenders have growing offshore balance sheets that will require funding and are expected to become significant issuers of dollar-denominated bonds in the next three to five years, said Mark Follett, J.P. Morgan Chase & Co.’s head of high-grade debt capital markets in Asia, excluding Japan.

“The offshore market may also offer opportunities to raise regulatory capital to support this asset growth,” he said.

Chinese banks usually tap the country’s US$4 trillion bond market for capital. But the introduction of the Basel III rules means that new bonds sold to meet capital requirements carry additional risks that domestic investors might be less willing to support.

In fact, a majority of investors in Asia Pacific are concerned about the risks that the new bonds carry, a recent survey by Fitch Ratings found.

ICBC Asia, for example, failed to draw significant support from institutional investors for its Basel III-compliant dollar bond last week. Most fund managers sought a higher yield as compensation for the additional risk.

Holders of Basel III-compliant bonds would be first to lose money if the issuer’s national regulator determined that the lender can’t survive, or that the bank would need a government bailout to stay afloat. The provision is intended to make bondholders bear the burden before taxpayers.

The Basel III rules, voluntary tougher standards on bank liquidity, are to be phased in through 2018. They are intended to strengthen banks and avoid the need for governments to use taxpayer money in the event of a crisis.
China has also adopted stricter capital rules