Goldman Sachs is set to raise US$1.1 billion with the sale of its remaining stake in the Industrial and Commercial Bank of China (ICBC), the world's largest bank by assets.
The sale makes Goldman a net profit of US$7.72 billion on its seven-year investment, market sources said.
The shares were offered at between HK$5.47 and HK$5.50 each, a discount of up to 3 per cent to yesterday's closing price of HK$5.64.
Goldman and ICBC were not available for comment yesterday.
The move is the sixth disposal of ICBC shares by Goldman, bringing to an end the "strategic partnership" the two banks had established. New York-based Goldman bought a 4.9 per cent stake in ICBC for US$2.58 billion before the Chinese bank's initial public offering in 2006.
The sale, scheduled to be completed by midnight last night, came after Goldman beat expectations and posted a 7 per cent increase in net profit in the first quarter.
The disposal could ease the capital pressures on Goldman, under the stricter regulatory regime that came into effect after the 2008-2009 global financial crisis, said Guo Tianyong, a professor at the Central University of Finance and Economics in Beijing.
It also lets the bank lock in its gains at a time when mainland lenders are set to report slower growth in net earnings as bad loans build up and interest rate deregulation sets in, an analyst at a Beijing-based brokerage said.
The deal means Goldman will have cashed in its ICBC stake for about US$10.3 billion.
Goldman analysts put a "buy rating" on ICBC shares last month after the mainland bank, the world's largest by market capitalisation, said its first quarter net profit climbed 12 per cent year on year.
ICBC shares yesterday rose 1.4 per cent in Hong Kong and 0.72 per cent in Shanghai, before IFR reported the deal last night. The sale is Goldman's third disposal of ICBC shares in about a year.
The US bank raised US$2.5 billion from a partial sell-down of its stake in April last year, most of which was bought by Singapore's sovereign wealth fund, Temasek. In January, Goldman sold about US$1 billion of stock.
The sale by Goldman, despite repeated assurances over the past few years that it was a long-term investor in ICBC, was expected to affect confidence in the shares of mainland banks, analysts said.
Future profits of mainland banks like ICBC are likely to be affected by interest rate liberalisation, which would reduce interest income margins.
Moreover, loans extended to exporters, local government financing vehicles, property developers and industries suffering from overcapacity could turn bad.
Analysts are increasingly concerned about the risk of a bad-debt problem in China related to over-extended property lending sparked by the economic stimulus plan Beijing rolled out during 2009 in response to the global financial crisis.
Before its 2006 initial public offering, ICBC was a technically insolvent state institution, reeling from the bad loans that had saddled China's financial industry.
ICBC's fortunes turned after it went public, and the bank grew along with China's economic boom. The bank's US$240 billion market value is just shy of the combined worth of JP Morgan Chase and Barclays.