Bloomberg News

Temasek Buys China Construction Bank Shares for $2.8 Billion

September 05, 2011

(Adds Tan’s appointment in fifth paragraph.)

Sept. 6 (Bloomberg) -- Temasek Holdings Pte, Singapore’s state-owned investment company, bought shares in China Construction Bank Corp. for as much as HK$21.7 billion ($2.8 billion) about eight weeks after paring its holdings.

Temasek purchased 4.4 billion shares, paying as much as HK$4.94 apiece and increasing its stake to 8.1 percent of the Hong Kong-listed shares, according to a filing to the Hong Kong stock exchange yesterday. Bank of America Corp. said Aug. 29 that it agreed to sell about half its stake in the Beijing-based lender for $8.3 billion to bolster capital.

The purchase rebuilds Temasek’s stake in CCB at a cheaper price after it sold HK$9.4 billion of stock at HK$6.26 a share in July. Temasek said after the sale that it remained “bullish” on CCB, which has dropped 14 percent in Hong Kong trading since the end of June on concern the nation’s record $2.7 trillion lending boom will lead to a wave of defaults.

The purchase “reflects a long-term confidence in the Chinese economy and Chinese banking sector,” Eugene Tan, an assistant professor of law at the Singapore Management University, said by telephone. “Given the volatility of the markets, investors like Temasek may be forced to adopt such strategies to enable them to continue toward their longer term objectives of making good returns.”

Hiring From BofA

Separately, the Singapore company hired Tan Chong Lee as its chief investment officer-designate from Bank of America, according to two people familiar with the matter. Tan, who was the head of corporate and investment banking in Southeast Asia at Bank of America’s Merrill Lynch unit in Singapore, will be a senior managing director at Temasek, said the people, declining to be identified as the information isn’t public.

Construction Bank declined 0.9 percent to HK$5.48 as of 10:21 a.m. local time in Hong Kong, extending its drop this year to 21 percent.

Temasek, which sold part of its stakes in Construction Bank and Bank of China Ltd. for $3.6 billion in July, said at the time that it’s still seeking deals in China, the company’s largest investment destination.

Boosting Bank Stakes

The fund’s units had sold 1.5 billion shares in Construction Bank for HK$6.26 a share, and 5.19 billion shares of Bank of China at HK$3.63 apiece.

The sales were part of its “portfolio rebalancing” and the world’s fastest-growing major economy accounts for more than 20 percent of its S$193 billion ($160 billion) portfolio, the investment company said.

It bought 97.1 million shares of Bank of China on Aug. 22, boosting its stake to 7.07 percent of the Hong Kong-listed shares from 6.96 percent, according to a filing to the Hong Kong stock exchange last week. Temasek paid an average HK$2.972 a share, with a maximum price of HK$3, it said.

Temasek held 16.9 billion shares in Construction Bank as of Dec. 31, giving it 7.03 percent of the Hong Kong-listed shares and 6.76 percent of the total, according to the Chinese lender’s annual report. Its Fullerton Financial unit held 14.1 billion shares, or 5.65 percent of the total.

Financial services companies made up 36 percent of its portfolio as of March. It’s the biggest investor in banks including Standard Chartered Plc and DBS Group Holdings Ltd. and holds stakes in India’s ICICI Bank Ltd. and Indonesia’s PT Bank Danamon Indonesia.

Capital Shortfall

CCB said it extended an agreement with Bank of America to December 2016 that allows the firms to work together on retail and corporate operations, as well as wealth management and investment banking, according to a separate statement to the Hong Kong stock exchange yesterday.

Bank of America will have a $3.3 billion gain from selling 13.1 billion shares of Construction Bank this quarter to a group of investors in a private transaction, the Charlotte, North Carolina-based lender said Aug. 29 in a statement, which didn’t identify the buyers.

The U.S. lender, which was the second-biggest shareholder in CCB at year-end, aims to bolster capital ahead of new international standards. It began investing in CCB before the Chinese bank’s 2005 initial public offering and owned 25.6 billion shares at the end of June, the lender said in a regulatory filing. The stake equaled about 10.6 percent of CCB’s Hong Kong-listed shares, according to data compiled by Bloomberg.

Investors’ Concern

Selling the shares helps Bank of America raise capital to comply with tougher minimums that may be imposed by regulators as they try to prevent a repeat of the 2008 financial crisis.

Bank of America Chief Executive Officer Brian T. Moynihan, 51, has also been selling businesses and assets as the firm seeks to comply with international capital standards set by the Basel Committee on Banking Supervision. The bank, the largest in the U.S. by assets, has slumped 46 percent this year in New York trading amid investor concern that it may need to issue stock as mortgage-related losses deplete capital.

CCB’s Fund-Raising Plans

Construction Bank, the world’s second-most valuable bank, said on Aug. 21 that first-half profit jumped 31 percent to a record 92.8 billion yuan ($14.5 billion) as credit demand climbed. The lender said Aug. 22 that 93 percent of its local- government loans were covered by cash flow at the end of June.

China’s first audit of local government debt found liabilities of 10.7 trillion yuan at the end of 2010, 79 percent of which were bank loans, the National Audit Office said in June.

China’s banking regulator told lenders to accelerate collections and said they haven’t set aside adequate funds for losses on local-government debt, a person familiar with the matter said in July. Standard & Poor’s estimates as much as 30 percent of such loans may sour and be the biggest contributor to bad debts at banks.

Construction Bank also plans to raise most of a proposed 80 billion yuan debt offering in Hong Kong, it said last month. The lender hopes to sell the subordinated debt by the end of this year, Chairman Guo Shuqing told reporters in Beijing on Aug. 22. Construction Bank won approval from shareholders on Aug. 18 to replenish capital within two years.

--With assistance from Billy Chan in Hong Kong. Editors: Chitra Somayaji, Chua Kong Ho.

To contact the reporters on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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