Temasek Holdings, the Singapore state-owned investment group, has agreed to pay $2.3 billion to Goldman Sachs (NYSE: GS) for a stake in Industrial and Commercial Bank of China (ICBC), the world's largest bank by market value.
The deal, which gives Temasek 1.3 percent of ICBC, advances Temasek further into China's banking sector, which now boasts of four of the world's top ten banks by market value. Temasek said Sunday it will buy 3.55 billion shares at HK$5.05 ($0.71) each, a 3.1 percent discount to Friday's closing price.
Temasek, which already has stakes in China Construction Bank, Agricultural Bank of China and Bank of China, has recently tried to remain invested close to home. This strategy, which was laid out after the global financial crisis of 2008, has helped Temasek grow and rerecover the losses it took on investments in banks in Europe and the US.
In addition to this deal with the Singapore state investor, Goldman Sachs is also selling shares of ICBC worth $200 million to other institutional investors, says a Reuters report.
Goldman Sachs has been following a plan to prune its stake in ICBC, which has a market value of $240 billion. Goldman Sachs, which acquired its ICBC stake in 2006, had reported a $517 million pretax loss in 2011.
Last month ICBC reported that its net profit in 2011 went up by 26 percent. At the same time there has also been an increase in bad debts, which has become a matter of huge concern for investors. Also China’s decreasing growth rate, subsequent to a decline in domestic property investment and export demands, is expected to further raise bad loans and erode the profitability of the bank.
With property developers and small businesses facing a difficult time, an increase in the non-performing loans is anticipated by investors like Goldman Sachs, who for the time being are trimming their stakes in China's banking sector. Last month Citigroup sold its 2.71 percent equity stake in the Shanghai Pudong Development Bank for $668 million through block trade to institutional investors.