Bloomberg News

Temasek Sells $3.63 Billion of Bank of China, CCB Shares

July 06, 2011

(Adds Temasek comments in sixth paragraph.)

July 6 (Bloomberg) -- Temasek Holdings Pte raised HK$28.2 billion ($3.63 billion) selling stakes in China Construction Bank Corp. and Bank of China Ltd., hours after Moody’s Investors Service said the credit outlook for lenders may sour.

Singapore’s state-owned investment company sold about HK$18.8 billion of stock in Bank of China, the nation’s third- largest lender by assets, and about HK$9.4 billion of second- ranked Construction Bank at discounts of at least 3 percent yesterday, according to data compiled by Bloomberg.

Bank of China and Construction Bank slumped in Hong Kong, leading the nation’s lenders lower for a second day after Moody’s said loans to local governments may exceed official estimates. Construction Bank has more than doubled and Bank of China gained over 30 percent since Temasek bought the stakes before their initial public offerings more than five years ago.

“The selldown is part of Temasek’s consolidation of their share holdings in Chinese banks,” said Stanley Li, an analyst at Mirae Asset Securities (HK) Ltd. in Hong Kong who rates Bank of China and Construction Bank as “hold.” “This may reflect some of its concerns about the banks.”

Bank of China dropped 3.6 percent, the most in a month, and traded at HK$3.72 at the close of trading in Hong Kong. Beijing- based Construction Bank fell as much as 3.2 percent.

Temasek continues to hold “substantial positions” in Chinese banks, Jeffrey Fang, a spokesman for Temasek in Singapore, said in an e-mail. “This sale is part of our portfolio rebalancing, which we do from time to time.”

Trimming Stakes

Foreign investors including Bank of America Corp., Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc have trimmed more than $20 billion in holdings in Chinese lenders since 2009 to bolster capital as global regulators tightened requirements following the credit crisis.

Temasek, which has focused on emerging markets investments, will probably say in its annual report that the value of its assets rose to about S$200 billion ($163 billion) in the 12 months to March 31, according to Victoria Barbary, a senior analyst at Monitor Group in London, and Song Seng Wun, an economist at CIMB Research Pte. in Singapore. That would surpass the S$186 billion record reached a year earlier.

Fullerton Financial Holdings Pte, a unit of Temasek, sold 5.19 billion Bank of China shares for HK$3.63 each, 6 percent less than yesterday’s closing price in Hong Kong. Cairnhill Investments (Mauritius) Pte and Crescent Investments (Mauritius) Pte, both controlled by Temasek, sold 1.5 billion Construction Bank shares for HK$6.26 each, or a 3.4 percent discount.

Debt Concern

The extra 3.5 trillion yuan ($540 billion) of local governments’ liabilities reported by Moody’s yesterday, coming on top of the national audit office’s findings last week of 10.7 trillion yuan in debt, may fuel concern that lenders will be unable to absorb losses on defaults when the economy cools.

Bank of America, the biggest U.S. lender by assets, may sell some of its almost $22 billion stake in Construction Bank, three people briefed on the plans said last month. The Charlotte, North Carolina-based lender was the second-biggest shareholder in Construction Bank at year end, with Temasek being the third- largest investor, according to Bloomberg data.

A lockup on 12.4 billion Hong Kong-listed Agricultural Bank of China Ltd. shares held by investors including Standard Chartered Plc and Qatar Investment Authority expires this month. The Chinese bank’s listing raised $22.1 billion in the world’s largest initial public offering in July 2010.

Temasek, set up in 1974, bought $1 billion of stock in China Construction Bank’s initial public offering in 2005. The IPO price was HK$2.35. It also purchased a 5.1 percent stake in the Chinese lender from China SAFE Investments Ltd. in August the same year, according to its annual report that year.

Offer Price

Fullerton Financial offered the shares in Bank of China for HK$3.60 to HK$3.67 each, the term sheet showed. Temasek owned about 10.5 billion shares, or 12.5 percent of Bank of China’s Hong Kong-listed stock, according to a Dec. 31 filing. It paid about $1.5 billion for a 5 percent stake in the lender before its IPO in June 2006.

Cairnhill Investments and Crescent Investments offered about 1.5 billion shares in China Construction Bank for HK$6.22 to HK$6.35 each. Temasek held 7 percent, or 16.9 billion Hong Kong-listed shares, of Construction Bank, according to filings.

Morgan Stanley led the sales by Temasek’s units, according to the offering term sheets.

--With assistance from Stephanie Tong in Hong Kong and Netty Ismail in Singapore. Editors: Chitra Somayaji, Lars Klemming.

To contact the reporters on this story: Zijing Wu in London at zwu17@bloomberg.net; Cathy Chan in Hong Kong at kchan14@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.


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