The Government intends to sell billions of dollars worth of its share portfolio before the end of the year, according to officials at Exchange Fund Investment (EFI). Exchange Fund Investment chairman Yang Ti Liang said yesterday the disposals 'would take place in the second half'. 'We are studying the best way to sell the shares.' Analysts believe the market's strength may allow the Government to sell up to HK$30 billion, of the HK$120 billion of its portfolio that will come to the market, through placements. They said shares held in HSBC, China Mobile and Hutchison Whampoa were the most likely candidates for such sales. Director Chan Kam-lam said two methods could be used to unload the remaining shares. 'We will use either private placement or exchangeable convertible bonds to sell the shares,' Mr Chan said. He also said the Exchange Fund Investment would not sell the entire holding immediately because it did not want to upset the market. The disposals will increase liquidity as investors will be able to buy shares locked-up in the Government's portfolio. Liquidity has been squeezed by the intervention as market players point out the Government's holding may represent up to 20 per cent of the public float. This has led to volatility that can only be solved by a release of the shares back into the market by the Government. Mr Chan also rejected talk that Exchange Fund Investment would make another public offering of the Tracker Fund. In August 1998, in a bid to fend off currency speculators, the Government spent HK$118 billion buying Hang Seng Index stocks. Exchange Fund Investment was set up in November that year to handle any subsequent sales of the newly acquired stock. The sales were made via the Tracker Fund and have seen HK$66 billion in stock sold at its initial public offer last November and at its past three quarterly sales. The remaining portfolio is worth HK$170 billion, of which the Government will keep HK$50 billion for long-term investment. Broker Gilbert Cheung Yik-cho said that with the Government's large holdings in HSBC stock, these shares were the most likely to be placed. The Government bought 237 million HSBC shares for HK$40 billion, representing one third of its intervention cost. With about 9 per cent of the giant bank in its hands, the Government became its single largest shareholder. 'The Government could easily place up to HK$20 billion of HSBC at a 5 per cent discount of share price,' Mr Cheung said. The Government bought HSBC at about HK$57.33 after taking into account a one-to-three share split. Assuming the placement took place at yesterday's close of the three shares the Government would make a gain of 71 per cent profit in HSBC, 6.9 times profit at China Mobile and 3.4 times profit at Hutchison Whampoa. Meanwhile, Tse Kam-keung, managing director of Tracker Fund custodian State Street Asia, said the company would alter the fund's composition in line with the change of Hang Seng Index stocks announced on Friday. This means it must sell off shares in Great Eagle and Shangri-La and buy Legend Holdings and Li & Fung. It also needs to switch HKT shares into Pacific Century CyberWorks.
