Hong Kong-listed shares of China Construction Bank Corp rose more than 4 percent on Tuesday after Bank of America Corp said it will 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 also lifted CCB's appeal as the Singapore state investor had only about a month ago sold $3.6 billion worth of CCB and Bank of China shares.
Two sources familiar with the situation had told Reuters on Monday that Temasek is among the buyers of the BofA 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, 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 bank through its Huijin investment arm.
Temasek pocketed about HK$9.39 billion when it sold part of its CCB stake for HK$6.26 per share on July 5. This is 43 percent higher than the HK$4.38 it paid per share when it subscribed to BofA's share of the Chinese bank's rights offer, according to Antos' calculations.
Separately, Temasek also raised its stake in China's No.4 lender Bank of China to 7.07 percent from 6.96 percent, according to a disclosure to the Hong Kong stock exchange on Monday.
It bought each share for HK$2.972, according to the disclosure, which would translate into a total deal size of about HK$288 million. That is a 7 percent discount to BOC's current trading price of about HK$3.20.
A Temasek spokesman declined to comment. Temasek had said in July it was bullish on China and is looking for opportunities in emerging markets and the United States.
Temasek has plenty of cash, having added $7 billion to its cash pile in its last financial year, 70 percent more than a year ago. Standard & Poor's estimates that the fund, owned by Singapore's Ministry of Finance, had cash and bank balances of almost S$40 billion ($33 billion) at the end of March 2010.
CCB closed up 1.8 percent at HK$5.65, its highest in about three weeks but paring earlier gains of over 4 percent. The benchmark Hang Seng China Enterprises Index of top locally listed mainland companies was up 2.2 percent.
Trading volume spiked to a more than two-year high with nearly 5 billion shares changing hands. Of that, 4.4 billion shares changed hands at HK$4.94 in pre-opening trade, said Patrick Yiu, 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, more than the 12 percent decline on the benchmark Hang Seng Index.
CCB will sign a five-year strategic cooperation agreement with BofA within days, it said in a statement posted on its website, adding that it understood the reasons for BofA's stake sale and reiterated that it believes the U.S. lender will 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 close of HK$5.55, based on Reuters' calculations.
This comes on top of an about 10 percent discount that CCB was trading at compared with its two closest rivals, Industrial and Commercial Bank of China Ltd and Agricultural Bank of China Ltd.
BofA is selling 13.1 billion CCB shares for $8.3 billion, it said on Monday, in its latest effort to shed assets and boost capital.
This removes an uncertainty that's been hanging over CCB shares for a long time, said BNP Paribas analyst Dorris Chen in Shanghai. When you look at CCB's valuations, it's clearly a very strong buy, but asset quality concerns are going to drag on for a while more, Chen added.
There have been widespread worries that asset quality at Chinese banks such as CCB and ICBC may sour if the country's economy slows, as many of them had boosted lending in a big way during the global financial crisis to boost growth.
(Additional reporting by Victoria Bi in HONG KONG,; Graphic by Christine Chan; Editing by Muralikumar Anantharaman)