HONG KONG (Reuters) – Top U.S. lender Bank of America (BAC.N) raised $2.83 billion from selling part of its holding in China Construction Bank (0939.HK) and Hong Kong’s richest tycoon followed by selling a $500 million stake in rival Bank of China (3988.HK).
Shares in China’s big banks skidded on Wednesday after Bank of America’s early-morning sale, with investors expecting further sell-downs in the face of slowing earnings growth at mainland lenders and the lapse of lock-up provisions on stake holdings.
China’s three largest banks attracted big strategic investments from western financial giants at the time of their initial public offerings. Some of those investors, including Royal Bank of Scotland (RBS.L), are now under pressure to sell as the global financial crisis ravages the banking industry.
Bank of America sold more than 5.62 billion Construction Bank shares at HK$3.92 apiece, according to a term sheet obtained by Reuters and a person familiar with the matter, in a deal that had been widely anticipated by the market.
Bank of America realises a profit of about $1.13 billion on the stake sale, based on Construction Bank’s IPO price. It sold the stake at a 12 percent discount to the stock’s Tuesday close.
“The news has been expected but investors will still take it hard because BoA will most definitely sell more. They need the money,” said Francis Lun, general manager with Fulbright Securities in Hong Kong.
Bank of America had planned and then cancelled a similar sale last month, sources familiar with the situation said.
The stake sold represents about 2.5 percent in Construction Bank, and will leave Bank of America with a 16.6 percent holding in the Beijing-controlled lender.
Bank of America bought its initial stake in Construction Bank ahead of the mainland lender’s 2005 IPO and built its holding up to just over 19 percent.
An investor identified by a source as a foundation controlled by tycoon Li Ka-shing was later on Wednesday selling Bank of China shares worth up to $524 million.
Li, who is chairman of conglomerate Hutchison Whampoa Ltd (0013.HK) and property developer Cheung Kong (Holdings) (0001.HK), was selling 2 billion shares at HK$1.98 to HK$2.03 each, according to a term sheet.
The shares were being sold at a discount of 5 percent to 7.5 percent to their HK$2.14 Wednesday closing price in Hong Kong. Bank of China shares trade below their HK$2.95 IPO price.
Li will still hold shares in the bank through the foundation, the person said. A spokeswoman for Li was not immediately available to comment.
Given the high barriers to foreign entry to China’s fast-growing financial industry, overseas institutions are reluctant to relinquish any of their hard-won access.
On the other hand, earnings growth is slowing at mainland lenders as the economy cools amid the global downturn.
Warren Blight, analyst at Fox-Pitt Kelton in Hong Kong, said Bank of America may look to sell a further stake but he does not expect a complete sell-down.
“Even putting lockups aside on the later holdings, I think they want to maintain a close relationship with CCB,” he said.
Speculation that the U.S. bank would look to trim its stake has been rife since a three-year lock-up on the initial chunk expired.
Construction Bank shares closed down 8.76 percent at HK$4.06, helping drag the Hang Seng Index .HSI 3.37 percent lower. Construction Bank shares trade at less than half their all-time high, reached in late 2007.
In another Chinese sell down by a western bank, Switzerland’s embattled UBS (UBSN.VX) (UBS.N) recently unloaded its holding in Bank of China (3988.HK).
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Citigroup said Bank of China might see further stake sales this year by Royal Bank of Scotland, which holds 8.3 percent, and Singapore state investment agency Temasek Holdings [TEM.UL], which owns 4.1 percent. Lockups on those stakes lapsed last month, it said.
Industrial and Commercial Bank of China (1398.HK) could also come under stake sale pressure this year.
Goldman Sachs (GS.N), Allianz (ALVG.DE) and American Express Co (AXP.N) own a combined 7.3 percent in ICBC, with lockups that will lapse in April and October, Citigroup said in a note.
ICBC shares fell 7.26 percent on Wednesday in Hong Kong, while Bank of China’s shares were off 3.17 percent.
Wednesday’s share sale was handled by UBS and Bank of America’s newly acquired Merrill Lynch arm. Buyers of the shares must hold them for at least 120 days, the term sheet said.
China Construction Bank said the sale does not change its relationship with Bank of America.
By Tony Munroe
(Additional reporting by Umesh Desai, Parvathy Ullatil, Nerilyn Tenorio and Donny Kwok; Editing by Ian Geoghegan and Jean Yoon)