A reverse inquiry from Temasek Holdings over the weekend prompted Goldman Sachs to sell close to half its remaining stake in Industrial and Commercial Bank of China (ICBC) before the opening of Hong Kong trading yesterday. The self-led deal was done at a fixed price and saw the US bank raise about $2.5 billion.
Temasek bought $2.3 billion worth of the shares, and with that type of high-quality anchor order, Goldman had no problems selling the remaining $200 million worth of shares to other investors — even though the deal came at a tight discount, launched at 7am Hong Kong time and was open for only one hour. It also helped the stock hold up after the trade. Against a backdrop of a 0.4% decline in the Hang Seng Index and a 0.8% drop in the H-share index, ICBC’s H-shares fell only four cents, or 0.8%, yesterday to a close of HK$5.17 — well above the placement price.
Goldman offered about 3.9 billion Hong Kong-listed ICBC shares at a price of HK$5.05, which translated into a 3.1% discount versus Friday’s closing price of HK$5.21. This was a significant improvement from its most recent sale in November last year when it raised $1.1 billion at a 6% discount. That deal had to be downsized somewhat to match the level of demand and the share price fell sharply in the aftermath.
This latest sell-down — Goldman’s fourth since it first invested in ICBC in 2006 — accounted for about 4.45% of ICBC’s H-share capital, and will reduce Goldman’s holdings to 4.99% from about 9.4%. Its share of ICBC’s overall share capital (including its Shanghai-listed A-shares) will drop to 1.24% from 2.34%.
The fact that Goldman’s stake is now below 5% of the H-share capital means that it won’t have to disclose any further sales. It also raises the question of whether Goldman can still be considered a long-term shareholder in the Chinese bank. That said, its remaining 4.3 billion shares are valued at about $2.9 billion at yesterday’s closing price, so it is by no means an insignificant stake.
There is no lock-up on the remaining shares, according to a source, but Goldman stuck to what it has said after the past couple of sales when it told investors yesterday that it has no intention of selling more shares for the time being.
Meanwhile, the transaction will boost Temasek’s stake in ICBC to about 5.3% of the H-share capital, or 1.3% of the overall bank, the Singapore investment company said in a written statement. This means it has now surpassed Goldman as the second-biggest holder of ICBC’s H-shares after the Chinese government. Temasek, which also owns more than 5% of the H-share capital in both Bank of China and China Construction Bank, didn’t elaborate on the reasons behind its investment, but said it bought 3.55 billion shares.
Aside from Temasek, the deal attracted about 70 investors and the $200 million portion available to them was several times covered, the source said. Not surprisingly, given the early hour and the fact that the order books were only open for an hour, most of the buyers came from Asia and the hedge fund participation was high. The buyers also included some existing shareholders. However, long-only investors were less well represented as they typically are not able to react that fast, and this particular block was not widely expected. At least not right now — just one day before Goldman’s first earnings report for 2012. ICBC’s share price had also retreated from a 2012 high of HK$5.69 in late February. However, it did jump 3.2% on Friday.
ICBC, which is the biggest bank in the world by market capitalisation, posted a 25.6% gain in net profit in 2011 to Rmb208.4 billion ($32.9 billion). Net interest income rose by 19.4% to Rmb362.8 billion, while non-interest income was up 40% to Rmb107.8 billion.
The structure of the block, with an anchor investor taking a large portion of the deal and then offering the rest of the shares to other institutional investors, is in favour with investors at the moment as it generally allows for a tighter allocation than if the entire deal was offered to the broader investment community. It also tends to help support the stock in the aftermarket.
Another recent example of this was Kunlun Energy’s $1.35 billion top-up placement two weeks ago, when RRJ Capital came in as an anchor investor. Bankers declined to comment on how big a portion of the deal the private equity fund bought, but the Financial Times reported that RRJ and Temasek together bought about $600 million worth of shares, which would translate into approximately 44% of the overall deal.
Kunlun’s share price dropped 3.1% on the day after the deal, which was significantly less than the 7.6% placement discount. The deal was arranged by Bank of America Merrill Lynch, CICC, Citi, Deutsche Bank, Morgan Stanley and UBS.
The ICBC block is the third-biggest equity deal in Asia ex-Japan so far this year after AIG’s $6 billion sell-down in AIA Group and the Indian government’s sale of a 5% stake in Oil and Natural Gas Corp that raised $2.58 billion. It is also the largest of Goldman’s ICBC sales so far. Aside from the $1.1 billion disposal in November, it also sold $2.25 billion of stock in September 2010 and $1.9 billion worth of shares in June 2009.
Goldman paid just $2.58 billion for its original investment in the Chinese bank so it has got its money back three times over already. However, last year the ICBC stake resulted in a $517 million mark-to-market pre-tax loss as ICBC’s share price declined during the year, the US bank disclosed in its full-year earnings report.
The deal came as bankers are hoping for a pickup in equity capital markets activity after a pretty dismal first quarter that saw overall ECM volumes drop 27% from last year to $33.2 billion — and that was including the $6 billion AIA deal, which was the second-biggest block in the region ever. IPO volumes tumbled 74% to $5.9 billion as investors remained sceptical about untested companies, Dealogic data show.
The first billion-dollar IPO to test the market in the second quarter will be Haitong Securities, which is due to start bookbuilding today. Depending on the market conditions, it could be followed by Graff Diamonds, which is seeking to list in Hong Kong; Malaysian plantation company Felda Global Ventures; and perhaps late in the quarter, Formula One, which is hoping to list in Singapore.
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