Temasek trims holdings in BOC and CCB

Temasek Holdings last night raised $3.6 billion by selling part of its stake in Bank of China and China Construction Bank — the largest sell-down by the Singapore investment company in either bank to date and its biggest divestment in any sector so far this year.

It made the sales through two separate block trades, but since they were in the same sector and Morgan Stanley was the sole bookrunner on both transactions, they were obviously marketed to investors on a combined basis.

According to a source, there was also quite a bit of overlap in demand between the two, with many investors putting in orders for both trades. However, there was no requirement for them to do so.

The largest of the two deals was the sell-down in Bank of China, which accounted for just under half (49.5%) of Temasek’s total investment and raised HK$18.8 billion ($2.4 billion) — the second largest block trade in a Chinese bank after Bank of America Merrill Lynch’s $2.8 billion sell-down in China Construction Bank in January 2009.

The sale will reduce Temasek’s holdings to about 6.3% of Bank of China’s H-share capital from 12.5% before the deal.

The CCB transaction raised HK$9.4 billion ($1.2 billion), which makes it half the size in dollar terms. However, it accounted for no more than 8.5% of Temasek’s holdings and a mere 0.6% of CCB’s outstanding H-share capital. Temasek’s investment will fall marginally to 6.45% of the H-share capital from 7.05% before the deal.

Both deals were said to have been covered within the first hour — the smaller CCB transaction actually in less than half an hour — and to have been well oversubscribed when they closed at 10.30pm Hong Kong time. There was no information early this morning about who bought the deals or how many investors participated, but the price was fixed above the bottom of the indicated range on both trades, which suggests the bookrunner was at least not struggling to get them done.

Temasek offered 5.188 billion Bank of China shares at a price between HK$3.60 and HK$3.67, which represented a discount of 4.9% to 6.7% versus yesterday’s closing price of HK$3.86. The price was fixed at HK$3.63 for a discount of 5.96%.

It also offered 1.502 billion shares in CCB at a price between HK$6.22 and HK$6.35, which translated into a discount of 2% to 4% versus yesterday’s close of HK$6.48. The price was fixed at HK$6.26 for a 3.4% discount.

Both stocks have been under pressure in the past three months amid concerns about Chinese inflation and further tightening measures. The sell-off escalated in June as global equity markets also took a hit from the European debt crisis. Even with a slight rebound in the past seven trading sessions, Bank of China has lost about 10% since the beginning of June and CCB is off about 7.5%. The two stocks are also trading about 20% below their respective highs in November last year, making this a somewhat odd time for Temasek to sell. There was no information early this morning about why it was selling now, or what it intends to use the proceeds for.

Temasek added to its CCB holdings in November last year, when it bought Bank of America Merrill Lynch’s entire entitlement in CCB’s $9.2 billion rights issue in addition to its own portion. Based on the rights issue price of HK$4.38 per share and the fact BoA Merrill owned 11.9% of CCB at the time and Temasek 5.8%, it spent about $1.5 billion on those rights shares. It also committed to a three-month lock-up.

Temasek first bought shares in CCB in connection with its IPO in October 2005 and invested in Bank of China when it went public in May 2006.

It has reduced its stake in the two banks once since then. In November 2007 it raised $570 million, or HK$4.07 per share, from the sale of 1.08 billion shares in Bank of China, representing about 9.3% of its holdings. And just two days later it sold 280 million shares in CCB, or 2.1% of its holdings, at a price of HK$7.09 per share, raising $255 million. Both these blocks were arranged by Morgan Stanley.

The Singapore investment company tends to reshuffle its portfolio on a regular basis and since the financial crisis it has been reducing its exposure in the financial sector somewhat, while increasing its investments in resources and newer industries such as healthcare and alternative energy.

In the past few months Temasek has participated as a cornerstone investor in wind farm operator Huaneng Renewables’ $800 million IPO and in Shanghai Pharmaceutical’s $2 billion listing.

However, in July last year it invested $200 million in Agricultural Bank of China’s $22.1 billion IPO, which shows it is by no means shying away from the financial sector.

In January this year it raised $879 million from the sale of its entire 4.1% stake in Australian iron ore miner Fortescue Metals Group after the share price had doubled in the previous eight months. And in October last year it sold its entire 9.6% stake in Korea’s Hana Financial Group, raising $603 million.

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