Temasek Raises $2.48 Billion Selling China Bank Shares

Temasek Starts New Investment Company Headed by Former CIO
Temasek Holdings Pte. has transformed from a passive holder of stakes in government-controlled companies to an investor with more than two-thirds of its underlying assets abroad. Photographer: Munshi Ahmed/Bloomberg

Temasek Holdings Pte., Singapore’s state-owned investment company, sold $2.48 billion of shares in Bank of China Ltd. and China Construction Bank Corp. less than a month after investing in their larger rival.

Temasek received about $1.24 billion selling 3.1 billion Bank of China shares at HK$3.13 apiece, and a similar amount divesting 1.6 billion shares in China Construction Bank at HK$5.99 each, according to documents seen by Bloomberg News. The shares fell by the most in six months and are the worst performers on Hong Kong’s benchmark Hang Seng Index.

Bank of China said last week that profit growth slowed to 10 percent in the first quarter as the Chinese economy decelerated, and China Construction Bank had the slowest earnings growth in more than two years. Industrial & Commercial Bank of China Ltd., the world’s largest lender by value that Temasek invested in last month, extended its lead as the most profitable global bank after posting a 14 percent increase in earnings.

“Temasek’s latest sell decision sends a powerful signal to investors,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia, wrote in a note today. “Earnings growth for both banks lagged the sector considerably,” he said, adding that he “strongly” favors ICBC.

ICBC’s non-performing loan ratio of 0.89 percent by March 31 was also lower than those of Bank of China and China Construction Bank. Temasek bought $2.3 billion of shares in Beijing-based ICBC from Goldman Sachs Group Inc. in mid-April.

Shares Drop

Bank of China fell 4 percent to HK$3.13 at 12:04 p.m., while China Construction Bank slid 3.3 percent to HK$5.96, both set for their steepest decline since Nov. 10. The Hang Seng Index lost 0.5 percent. Antos said he kept his “underperform” recommendation on Bank of China and placed China Construction Bank under review.

The Bank of China shares were sold at the low end of a HK$3.13 to HK$3.18 price range, according to the term sheets, at a 4 percent discount to yesterday’s closing price. China Construction Bank was also priced at the bottom of the HK$5.99 to HK$6.10 range, at a 2.8 percent discount.

Jeffrey Fang, a spokesman for the Singapore investment company, confirmed the transactions today.

Temasek will continue to hold more than $17 billion in Chinese bank shares, he said. The firm will retain 7.4 percent of China Construction Bank’s Hong Kong-traded shares, keeping its place as the lender’s second-largest shareholder with a stake valued at $14.1 billion. It also has 3.72 percent of Bank of China’s shares traded in Hong Kong, valued at $1.3 billion.

Bank Holdings

Temasek had been increasing holdings in China Construction Bank and Bank of China as global lenders divest. It bought 3.77 billion shares of China Construction Bank from Bank of America Corp. on Nov. 11, increasing its stake in the second-largest Chinese lender by value, and raised its investment in Bank of China, the nation’s fourth biggest, to 7.07 percent from 6.96 percent after buying 97.1 million shares in August.

“Results for these banks have been pretty fair, given the operating environment, slower economy and higher interest rates,” said Jeff Papp, senior analyst at Oberweis Asset Management Inc. in Lisle, Illinois. “Maybe Temasek is taking a longer-term view and saying this is as good as it gets.”

The percentage of financial services companies in Temasek’s holdings rose to 36 percent from 35 percent as of March 2011, when the firm said it had 193 billion Singapore dollars ($156 billion) under management.

China’s economy expanded last quarter at the slowest pace in almost three years. The country’s gross domestic product expanded 8.1 percent in the first three months of 2012 from a year earlier in the fifth straight quarterly deceleration as authorities cracked down on property speculation and exports were hurt by Europe’s debt crisis.

Morgan Stanley and Bank of America managed both share sales as joint bookrunners, the terms show.

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