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14 May 2009

Singapore’s state firm acquires shares in China bank

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Singapore’s state investment group Temasek Holdings was among a group of buyers that purchased Bank of America's (BofA) $7.3 billion worth of shares in China Construction Bank yesterday, Reuters reported.

BofA sold the shares, just days after a US government "stress test" found the struggling US bank needed to find $34 billion worth of capital.

BofA unloaded the entire lot of 13.5 billion CCB shares it was allowed to sell, the source said, at HK$4.20 each, or a 14.3-per cent discount to their Monday close.

The group of buyers included a unit of China Life Insurance Co Ltd and China's Hopu Investment Management Co, the source said. The source was directly involved in the deal but was not authorised to speak about it on the record.

The sale cut BofA's stake in the Chinese bank by market value to around 10.6 percent.

A lock-up period on the block of shares sold expired last Thursday, since when equity capital markets bankers had hit the phones to line up investors, hoping to get a mandate and a fee from finding buyers.

But the sale did not involve any of the major investment banks that worked on similar stock sales, with the source saying the block of shares was a "principle to principle" negotiated deal.

A $1.2 billion block of shares briefly placed in the market by an unnamed CCB shareholder early yesterday was part of BofA's share sale, said the source. The bookrunner of that placement was brokerage BOCI, according to a term sheet obtained by Reuters.

CCB's Hong Kong-listed shares closed up 1.6 percent at HK$4.96 after falling sharply on Monday.

"Since the placement has been expected, I would see a slightly positive impact from the share sale as the overhang was removed," said Michael Tam, an analyst at South China Research.

"Buyers like China Life and Temasek are likely to hold the shares as longer term investments, especially as they bought the shares at a very attractive price below the stock's fair value."

A Bank of America spokesman declined to comment and an official with Beijing-controlled China Construction Bank could not be immediately reached for comment.

Bank of America had been expected to sell shares in CCB since the US government ordered it to find new capital following its "stress test" of 19 large US banks.

The discount is wider than when Bank of America offloaded $2.8 billion worth of CCB shares in January at 12 percent below the Chinese bank's last traded price.

BofA agreed in June 2005 to pay $3 billion for a nine-per cent stake in CCB — a shareholding that later grew to 16.7 per cent.





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