Hong Kong-listed shares of China Construction Bank Corp (CCB, 中國建設銀行) rose more than 4 percent yesterday after Bank of America Merrill Lynch Corp (BofA Merrill Lynch) said it would sell about half of its 10 percent stake in the Chinese lender, providing relief to investors by removing uncertainty surrounding the stake.
News that Temasek Holdings was among institutions that bought the shares offloaded by BofA Merrill Lynch also lifted CCB’s appeal because the Singapore state investor had only about a month ago sold US$3.6 billion worth of CCB and Bank of China shares.
Two sources familiar with the situation said on Monday that Temasek was among the buyers of the BofA Merrill Lynch stake in the world’s No. 2 lender by market value, a move that surprised some.
“They’re behaving almost like a hedge fund, which is surprising because they’ve always talked about being a long-term investor,” said James Antos, a banking analyst at Mizuho Securities in Hong Kong.
Temasek-linked investment firm Seatown, run by the state fund’s head of strategy Jimmy Phoon (潘秀興), was also a buyer, another person familiar with the situation said. The person did not know the size of Seatown’s purchase.
Before adding the newly bought shares, Temasek already owned 7.03 percent of CCB. This makes it the largest CCB shareholder after the Chinese government, which owns 59 percent of the banks through its Huijin investment arm.
CCB was up 1.80 percent to close at HK$5.65, its highest in about three weeks. The Hang Seng Index ended up 1.71 percent at 20,204.17. The China Enterprises Index finished up 2.24 percent at 10,747.08.
Trading volume spiked to a more than two-year high with about 4.7 billion shares changing hands. Of that, 4.4 billion shares changed hands at HK$4.94 in pre-opening trade, said Patrick Yiu (姚浩然), a director at CASH Asset Management.
“This suggests that about a third of the shares sold by Bank of America went to hedge funds and other institutional investors,” Yiu said. “It’s a big discount on the CCB shares, and whoever was offered such a big discount should be happy to take it up.”
Shares of CCB are down 17 percent so far this year, worse than the 12 percent decline on the benchmark Hang Seng Index.
CCB will sign a five-year strategic cooperation agreement with BofA Merrill Lynch within days, it said in a statement posted on its Web site, adding that it understood the reasons for BofA Merrill Lynch’s stake sale and reiterated that it believed the US lender would remain a long-term investor.
The two sides signed an agreement in 2005 to cooperate on areas such as credit card sales, risk management and retail banking, and the new cooperation will build on that, the statement added.
A sale price of HK$4.94 per share would represent a discount of about 11 percent to CCB’s Monday’s close of HK$5.55, based on Reuters’ calculations.
BofA Merrill Lynch is selling 13.1 billion CCB shares for US$8.3 billion, it said on Monday, in its latest effort to shed assets and boost capital. The bank needs to boost capital by about US$50 billion in the coming years to meet new global rules, according to multiple analyst estimates.
Bank of America Merrill Lynch shares gained 8.1 percent to close at US$8.39 on Monday.
For CCB, analysts said the sale helps soothe investor worries about when a sale might take place.