Leading steel-maker Baosteel's share divestment in China Construction Bank last week shows large state-owned enterprises hit hard by overcapacity could need to further sell non-core assets to generate liquidity, analysts said. Baosteel yesterday confirmed the sale, which reportedly raised HK$4 billion, saying the move was a "market operation". "Most steel mills lost money in August. It's reasonable to sell down some non-core investment to boost cash flow," said Stanley Li, an analyst at Mirae Asset Securities. Many large state-owned firms were called to support the initial public offerings of state banks. Baosteel's sale also comes as the outlook for mainland banks weakens. While Construction Bank fared as one of the better performers in first-half results, market sentiment has been pessimistic. The average share price of the nine mainland banks listed in Hong Kong has fallen by about 21 per cent since the end of April. Analysts said Baosteel's sale took place on a day when the market rallied. Construction Bank shares rose 3.81 per cent last Friday, the sharpest jump in nearly 11 months. The next three to five years represented a crucial phase for mainland lenders, as operating conditions turned harsher, delinquencies rose and lending profitability narrowed, said ratings agency Standard & Poor's. It said it also expected aggressive but unprepared players, particularly smaller banks without a competitive niche, to be hardest hit by the weakening conditions. Many larger and stronger banks would see a good opportunity to snap up smaller and weaker players to strengthen their market positions, the agency said. "We believe the top banks, particularly national and large regional banks, could spearhead massive market-driven consolidation," said Ryan Tsang, an S&P credit analyst.