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Temasek Raises Combined US$3.62 Bln In Sale Of Bank of China, CCB Shares

Contributed by Shares Investment

By Dow Jones Newswires  

Temasek Holdings has raised a total of US$3.62 billion by selling parts of its stakes in Chinese lenders Bank of China and China Construction Bank, a person familiar with the situation said Wednesday, as the Singapore state-investment firm diversifies its portfolio away from one that’s heavily weighted on financial companies.

The sale of the already hard hit Hong Kong-listed shares in China Construction Bank, the country’s second largest by assets, and Bank of China, the fourth, come as concerns about Chinese banks are on the rise given the growing size of debt they have accumulated from lending to local government vehicles. Ratings firm Moody’s Investors Services said Tuesday that it views the credit outlook for the Chinese banking system as potentially turning to negative, due to a lack of a clear plan to reduce local government debt.

On Wednesday, Temasek sold 5.188 billion shares in Bank of China at HK$3.63 each, in the middle of a price range of HK$3.60 to HK$3.67, the person said, raising US$2.42 billion. The share sale, done by its Fullerton Financial Holdings unit, was priced at a 6% discount to Bank of China’s Tuesday close of HK$3.86.

The Singapore state-investment firm Wednesday also sold 1.502 billion China Construction Bank shares at HK$6.26 each, near the middle of HK$6.22 to HK$6.35 price range, the person said, raising US$1.2 billion. The sale price reflected a 3.4% discount to the stock’s Tuesday closing price of HK$6.48. The placing of those shares were done by two Temasek units–Cairnhill Investments (Mauritius) and Crescent Investments (Mauritius).

Temasek had a 6.76% stake or 16.91 billion shares in China Construction Bank, as at December 31, 2010, according to China Construction Bank’s 2010 annual report. Following the sale, Temasek will be left with a 2.2% stake, or 6.1 billion shares, Bank of China spokeswoman Zhao Rong said Wednesday.

“We have received notification from Temasak on transferring Bank of China’s shares to other institutional investors,” Zhao said, but didn’t disclose reasons for the sale.

China Construction Bank declined to comment, but Dow Jones Newswires calculations put Temasek’s stake in China’s second-biggest lender’s at around 6.2%, or 15.4 billion shares, both in Hong Kong and Shanghai, after the sale.

Temasek is subject to a 90-day lock-up period, meaning that the company isn’t allowed to sell shares in both Chinese banks during the next three-month period, according to term sheets seen by Dow Jones Newswires earlier. Morgan Stanley is the sole bookrunner for both share placements, according to the term sheets.

Temasek acquired the stakes as a strategic investor ahead of Hong Kong initial public offerings by China Construction Bank and Bank of China in 2005 and 2006, respectively. In November last year, Temasek boosted its stake in China Construction Bank by taking up Bank of America Corp.’s (BAC) entire 11% entitlement in a rights issue launched by the Chinese lender. Temasek also invested as a cornerstone investor in Agricultural Bank of China’s record US$22.1 billion IPO last year.

The Singapore state-investment firm, which had a portfolio of US$133 billion on March 31, 2010, has been in the couple of years, expanding into resources and emerging markets, but as of early last year, stakes in financial firms still dominated its portfolio. According to its latest annual report for the year to March 2010, the energy and resources sector now accounts for about 6% of Temasek’s investments, up from 5% in the financial year ended March 2009, while financial services make up 37%, up from 33% in the 2009 fiscal year.

In October last year, Temasek sold its 9.6% stake in South Korea’s Hana Financial Group Inc. in a transaction that raised US$642.6 million, while in late 2008 and early 2009, it sold off high profile investments in Bank of America Corp. and Barclays PLC at a loss of nearly US$5.5 billion, according to people familiar with the situation.

At the same time, it has been ramping up in resources. In October last year, the investment company announced that it had invested US$400 million in Brazil’s Odebrecht Oil and Gas. Apart from its investment in Brazil, Temasek last year also invested more than $600 million in U.S. natural gas company Chesapeake Energy Corp (CHK) and another $200 million in India’s GMR Energy.

The sale of stakes in China Construction Bank and Bank of China are “we believe, a case portfolio adjustments by Temasek,” said Hong Kong-based Yuanta Securities analyst Ming Tan.

Still, the share placement came as a surprise and will be a drag on the performance of Chinese bank stocks, as the size of the sale was so “meaningful”, Macquarie said in a note to clients Wednesday. The Hong Kong-listed shares of Bank of China midday closed down 3.4% at HK$3.73, and are down 9.0% so far this year, while China Construction Bank closed down 2.9% at HK$6.29, having fallen 9.8% this year. They have underperformed Hong Kong shares: the benchmark Hang Seng index is down just 1.2% so far this year.

Investor wariness towards Chinese banks and their exposure to local government debt have been mounting in the past year. Local government debt amounted to 26.9% of China’s gross domestic product in 2010, according to a calculation by Dow Jones Newswires late last month, with most of the debt incurred during a two-year stimulus spending binge ordered by Beijing to fight the effects of the global recession. China’s 2010 gross domestic product was CNY39.7983 trillion, official data showed.