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BoA trims stake in Construction Bank

By Joey Kwok (China Daily)
Updated: 2009-01-08 07:48

China Construction Bank (CCB) shares fell sharply Wednesday after US lender Bank of America (BoA) sold 5.62 billion shares, or a 13 percent stake, in the Chinese lender for $2.83 billion.

CCB stock fell 8.31 percent to close at HK$4.08 in Hong Kong, making it one of the biggest losers for the day. In contrast, the benchmark Hang Seng Index ended the day 3.16 percent lower.

The CCB shares were sold at around HK$3.92 per share, reflecting a 12 percent discount over Tuesday's close of HK$ 4.45. Bank of America is expected to book profits of around $1.13 billion from the stake sale.

Related readings:  Construction Bank approved to set up London subsidiary  BoA denies sale of China Construction Bank shares  CCB to ramp up lending to aid Chinese economy  CCB shares slide 5.6% on stake sale concerns

The sell-off amounted to roughly 2.5 percent of outstanding shares in CCB. Bank of America continues to hold a 16.6 percent stake in the Chinese bank.

Bank of America had in December tried to unload a substantial part of its CCB shares, but failed.

Patrick Shum, a strategist at Karl Thomson Securities, said Bank of America is financially healthy and the American bank was not in any hurry to divest its entire stake in CCB.

"The sale may help reduce the fiscal pressure on Bank of America. It may also reflect a pessimistic outlook on future market performance of CCB," Shum said.

Shum predicted that Bank of America would hold on to its remaining CCB shares, even though there could be further downward pressure in the short term.

Wenli Yuan, Celent's senior analyst based in Beijing, declined to place any major significance on the sale. He said the transaction represents only, "normal market activity", and does not reflect a lack of confidence in China's banking industry.

CCB maintained that the share sale would in no way impact its strategic relationship with Bank of America. The bank said it intends to strengthen its cooperation with the US bank in business development.

"Bank of America has said many times that the reduction of its stake would not change its status as an important shareholder," CCB said.

Conita Hung, head of equity markets at Delta Asia Financial, said investment banks are not under critical pressure to sell off their stakes. She noted that governments worldwide have been implementing policies to help banks tide over difficult times.

"However, shares of the mainland banks may encounter short-term adjustment. CCB may face relatively greater pressure. Its stock may drop below HK$4 to HK$3.7," Hung said.

Standard & Poor's primary credit analyst Liao Qiang said the sale is only a single instance. He added that any significant exodus of foreign investors was dependent on respective financial circumstances and mainland strategic positioning.