Allianz and Amex sell half their ICBC shares

April 28 was without doubt the most watched lockup expiry in the Hong Kong market so far this year and as it was drawing closer, the prospect of a large sell-down once again had a downward impact on Industrial and Commercial Bank of China's share price. As it were, investors didn't have to wait long. Only eight hours or so after the strategic pre-IPO investors became allowed to sell part of their holdings, it emerged that Goldman Sachs had placed approximately 3.96 billion ICBC shares on behalf of Allianz and American Express, enabling them to raise a combined HK$14.88 billion ($1.92 billion).

Goldman Sachs itself, which became allowed to sell 20% of its stake in the Chinese lender yesterday, did not offload any shares. Potentially, this could mean that the expectations of a sale will continue, although the fact that ICBC's Hong Kong-listed shares traded up after the placement news yesterday suggests that the market is not expecting anything else in the short-term. Goldman, Allianz and American Express invested in ICBC in April 2006, ahead of the bank's IPO in October that same year, and under the original agreement they would all be allowed to sell 50% of their shares from April 28 this year.

Representatives of Goldman have said several times over the past month that the bank is in no rush to sell its ICBC shares and has no need to raise cash. To underscore its commitment both to ICBC and China, Goldman announced in late March that it had renegotiated its earlier lockups and will now keep at least 80% of its 4.93% stake until the end of April next year.

The US investment bank could of course decide to sell up to 20% at some other time over the next 12 months and Allianz and Amex will also be able to sell the other half of their shares from October 28, but for the short-term at least, it seems likely that the overhang on ICBC's share price has been removed. The fact that the share price held up so well after this transaction -- ICBC gained 2.5% even as the broader market and the other Chinese banks were down on the day -- may also reduce the concerns about potential future sales.

The positive share price movement seemed to back up comments by sources that the shares were placed with accounts that intended to hold them for the long term -- something which had been encouraged by ICBC. In separate statements issued jointly with ICBC at the time Goldman announced its new lockup arrangements, Allianz and Amex said that in case they decided to sell they would attempt to do so in a manner that will have a minimum market impact.

Indeed, the placement wasn't offered to the broader investment community, but was privately negotiated with a targeted group of investors and allocated to just under 20 accounts. Even so, the transaction was done at a discount of only 4% versus Monday's closing price of HK$4.02, which is one of the tightest discounts achieved by a Hong Kong placement or block trade year-to-date -- and certainly for a deal this size.

By comparison, the three sell-downs in Bank of China and the one trade in China Construction Bank in January required discounts ranging from 7.5% to 12%. The largest of those was Bank of America's $2.8 billion partial sale in China Construction Bank, which was completed at an 11.9% discount.

Yesterday's sale represented the full 50% that Allianz and Amex were each allowed to sell and accounted for a combined 1.2% of ICBC's total share capital. It was done at a fixed price of HK$3.86 per share, following a dialogue with investors over the past couple of weeks during which Goldman Sachs was essentially building a shadow book. Sources say the placement was underwritten in full by the US investment bank.

The final book was said to include a lot of existing shareholders and contain a mix of long-only investors and hedge funds. Approximately half the deal went to Asian accounts, while the rest was placed with US-based investors.

A detailed look at the transaction shows that Allianz sold 3.216 billion shares, representing 1% of ICBC's total share capital and 3.9% of its H-shares, while Amex offloaded 638 million shares, representing 0.2% of the total share capital and 0.8% of the H-shares. The sale saw Allianz raise $1.6 billion, while Amex brought home $318 million of cash, which compares with their respective initial investments of €824.7 million ($1.08 billion at today's exchange rates) and $200 million three years ago. And the two banks still have half their holdings left.

The 20% that Goldman is free to sell accounts for 1% of the total share capital and 4% of the H-shares. Based on yesterday's closing price that stake is worth about $1.75 billion. Its entire holding, which accounts for 4.93% of ICBC's total share capital and 19.9% of the H-share capital, is valued at about $8.8 billion. Its initial investment amounted to $2.58 billion.

After underperforming both the wider market and its peers in the first three months, ICBC's share price bounced after Goldman said on March 25 that it would hold on to 80% of its shares in the bank for another year. Last Monday it closed at a 2009 high of HK$4.50, which was up 26% since the March announcement. Over the past week, the looming lockup expiry started to weigh again, however, and the share price retreated close to 11%, including a 5.9% drop on Monday. Yesterday the share price gained 2.5% to HK$4.12 for a finish 6.7% above the placement price. The Hang Seng Index fell 1.9%.