China Construction Bank

CCB overhang fears eased by share deal

PUBLISHED : Wednesday, 31 August, 2011, 12:00am
UPDATED : Wednesday, 31 August, 2011, 12:00am


Related topics

The overhang on China Construction Bank's share price was lifted this week with news that Bank of America would sell about half of its stake in the lender - with Singapore sovereign wealth fund Temasek presumed to be on the list of buyers.

Bank of America said on Monday that it had agreed to sell about 13.1 billion common shares of CCB, the mainland's second-largest lender by market capitalisation, in a private transaction with a group of investors. The sale is expected to generate approximately US$8.3 billion in cash proceeds and an after-tax gain of approximately US$3.3 billion. After selling the shares, the bank will hold about 5 per cent of the Chinese bank.

The transaction is expected to close in the third quarter.

'This sale of approximately half of our shares of CCB stock is expected to generate about US$3.5 billion in additional tier one common capital and reduce our risk-weighted assets by US$7.3 billion under Basel I,' said Bank of America's chief financial officer, Bruce Thompson.

Thompson added that this month alone, through non-core asset sales and other actions, the bank expected to generate approximately US$5.8 billion in additional Tier 1 common capital and reduce risk-weighted assets by approximately US$16.1 billion under Basel I.

Bank of America had the lowest ratio of tier one common capital among US banks at the end of last year - 8.6 per cent. As part of an effort to boost capital adequacy levels, the bank sold its holdings in several companies last year, including asset management firm BlackRock and Spanish bank Banco Santander.

CCB's share price in Hong Kong rose 1.8 per cent, or 10 cents, to HK$5.65 yesterday. Bank of America's shares rose more than 33 per cent between August 23 and 29.

CCB and Bank of America said the sale would not jeopardise the partnership between the two banks. The Chinese lender said it was discussing with Bank of America an extension of the strategic assistance agreement.

CCB shares fell about 28 per cent between May 31 and August 26, partly due to Temasek's earlier divestment of 1.5 billion shares in July and speculation that Bank of America would sell a stake. With those uncertainties of an overhang resolved, investors have pushed up CCB shares.

Stanley Li, an analyst at Mirae Asset Securities in Hong Kong, said investors would likely respond positively to CCB if Bank of America sold the shares to a buyer that was willing to hold them for a long time, such as a sovereign wealth fund.

Two sources familiar with the situation told Reuters on Monday that Temasek was among the buyers of the American bank's stake.

Victoria Mio, a senior portfolio manager at Robeco Group, which has US$200 billion of assets under management, said if Temasek bought into the shares, they would have bought the stakes at around HK$4.94, an 11 per cent discount compared with China Construction Bank's closing share price on Monday of HK$5.5.

Temasek separately raised its stake in Bank of China, China's fourth-largest lender by market capitalisation, to 7.07 per cent from 6.96 per cent. However, this comes after Temasek sold 1.5 billion shares in CCB for HK$9.4 billion, and 5.19 billion shares in BOC for HK$18.8 billion in July.

Temasek declined to comment.