China Construction Bank

US bank to exit CCB in US$1.5b share sale

China slowdown and need for cash at home seen as factors in Bank of America's plan to sell its entire stake in the mainland's No 2 lender

PUBLISHED : Wednesday, 04 September, 2013, 12:00am
UPDATED : Wednesday, 04 September, 2013, 12:03pm

Bank of America yesterday launched a US$1.49 billion share sale in China Construction Bank to offload its entire stake in China's second-largest bank by market value.

Exiting its eight-year investment, Bank of America is offering its remaining two billion Hong Kong-listed shares in Construction Bank for HK$5.63 to HK$5.81 each - a discount of up to 5.1 per cent to the stock's closing price yesterday.

The move follows that of Goldman Sachs, which sold its entire stake in Industrial and Commercial Bank of China in May, and HSBC, which sold US$9.4 billion of Ping An shares in February.

The increasingly stringent capital requirements overseas and a slowdown in China are the main reasons for the exit of foreign financial institutions from mainland banks, analysts said.

A Hong Kong-based spokesman for Bank of America declined to comment, while calls and e-mail queries to Construction Bank went unanswered.

Shares in Construction Bank rose 1.89 per cent to close at HK$5.93 yesterday before the term sheet for the share sale was released. The stock has gained 8 per cent since July, outperforming the Hang Seng Index's 7.6 per cent advance.

Construction Bank chairman Wang Hongzhang had said last month he hoped Bank of America would retain its remaining stake of 0.8 per cent.

"BofA is in need of money and that's the main reason for the sale. Second, holding shares in another financial institution has become more expensive under new regulations, and BofA wants to maintain a stronger capital ratio," Mizuho analyst James Antos said.

A Hong Kong-based Chinese banking analyst who declined to be identified said: "Mainland banks are undergoing structural changes that will narrow their net interest margin and crimp profit growth. But the China story is still strong, and that is true both for the banking industry as well as the mainland economy."

He said some sovereign funds such as Singapore's Temasek and hedge funds were still looking to buy into mainland banks.

Global financial firms including Temasek invested US$33 billion in mainland lenders from 2001 to 2009, according to the banking regulator.

The interest rate liberalisation on the mainland and mounting bad loans in the banking industry might slow profit growth to single digits in coming years, credit rating agency Standard & Poor's said last month.

The American bank paid US$3 billion for a 9.9 per cent stake in the bank before its initial public offering in 2005 and later bought a further 11 per cent for about US$9.2 billion.

But lately it joined other foreign lenders in trimming its exposure to China. Before its latest offering, the American bank sold Construction Bank shares four times. The latest sale comes two years after Bank of America raised a combined US$14.9 billion from selling shares in Construction Bank to a group of investors that included Temasek.

Foreign institutions have raised at least US$14 billion from divesting shares in Chinese financial firms since last year, according to Bloomberg data.