BofA sells $2.8 bn China bank stock
Bank of America Corp sold $2.8 billion of China Construction Bank Corp shares to replenish capital after completing the biggest financial-services acquisition announced in 2008.
China Construction fell 8.8 per cent in Hong Kong, the biggest drop in more than two months. Bank of America sold 5.62 billion shares in China’s second-largest lender at HK$3.92 apiece, a 12 per cent discount to Tuesday’s closing price, according to a sales document obtained by Bloomberg News.
The largest US bank is trying to take advantage of almost $14 billion of paper profits from its China Construction stake, after paying about $33 billion to take over Merrill Lynch & Co Shares of Industrial & Commercial Bank of China Ltd and Bank of China Ltd also fell as the sale fueled concern that other foreign investors will seek to raise cash from their holdings in Chinese lenders.
“Investors expect more sales to come,†said James Liu, a Shanghai-based analyst at Sinopac Financial Holdings Co. “Bank of America and some other foreign strategic investors are just having too many issues on their home turf, and they have to find a quick way to raise cash.â€
Hong Kong billionaire Li Ka-shing is raising as much as HK$4.06 billion ($524 million) selling shares in Bank of China Ltd, the nation’s third-largest bank, according to a share sale document obtained by Bloomberg News on Wednesday.
Li’s Magnitico Holdings Ltd is offering 2 billion shares in the Beijing-based bank to institutions at HK$1.98 to HK$2.03 each, according to the document. Bank of China shares closed at HK$2.14 on Wednesday. Merrill Lynch & Co is managing the sale.
The Bank of America sale represents 13 per cent of its stake in China Construction. Bank of America invested $3 billion in the Chinese lender in 2005 and has since been increasing its share. In November, Bank of America paid $7 billion to almost double its holding to 19.1 per cent.
“It’s smart for Bank of America to take some profits,†said Sean Ryan, an analyst at Sterne Agee & Leach. “The Chinese don’t want a large part of the stake to be sold when the price of the shares has already declined significantly.â€
Since the initial investment, China Construction has catapulted to become the world’s second-largest bank by value, while Bank of America ranks seventh.
China Construction declined 36 per cent last year in Hong Kong, while the benchmark Hang Seng Index fell 48 per cent. Bank of America shares lost two-thirds of their value during the year, prompting the company to halve its quarterly dividend to 32 cents a share.
Bank of America plans to be “a long-term and significant strategic investor in CCB,†the US lender said in a November statement. The stock Bank of America bought in 2005 became eligible for sale in October, prompting analysts to suggest the US lender would sell part of its stake.
China Construction has been notified of the transaction and understands that Bank of America sold the shares because of “its financial situation,†the Chinese firm said in a statement on Wednesday. The companies will continue their strategic partnership and cooperate in all business areas, China Construction said.
Bank of America cancelled the December offering partly because of a Chinese securities law banning investors holding more than 5 per cent of a locally incorporated, publicly traded company from selling shares within six months of buying the stock, two people familiar with the matter said at the time.
The US bank decided to try again on expectations the rule doesn’t apply to Chinese shares traded in Hong Kong, a person with knowledge of the matter said on Wednesday, declining to be identified. Bank of America spokesman Scott Silvestri declined to comment on the latest sale.
UBS, Switzerland’s biggest bank, sold its entire stake in Bank of China Ltd to raise cash on December 31, the day its three- year lockup period ended.
Temasek Holdings Pte can sell its 9.9 billion China Construction shares anytime as its lockup agreement ended in August, according to Construction Bank’s listing document.
Royal Bank of Scotland Group Plc, controlled by the UK government after a bailout, owns 20.9 billion shares in Bank of China, or 8.5 per cent, while Temasek owns 11.9 billion shares, or 4.8 per cent. Their stakes can be sold after a December 30 lockup ended, according to the Chinese bank’s listing prospectus.
Goldman Sachs Group Inc owns 16.5 billion shares in Industrial & Commercial Bank of China Ltd and has agreed not to sell the shares until after April 28, 2009, according to the bank’s listing document.
