CCB block changes hands at tight discount

The undisclosed institutional seller pockets $369 million before expenses following a steep share price rally over the past two months.
An undisclosed institutional seller last night raised HK$2.88 billion ($369 million) from the sale of 408.5 million shares in China Construction Bank (CCB), taking advantage of a 43% gain in the share price over the past two months.

The deal was offered at a tight discount range of 1.8% to 2.5% versus yesterdayÆs close of HK$7.23 and not surprisingly priced at the wide end. However, this still marked the tightest discount on a Hong Kong placement this year, except for a small $42 million block in Wharf Holdings in early April that was launched at a fixed 1.6% discount. The final price was set at HK$7.05, compared with an indicated range of HK$7.05 to HK$7.10. Deutsche Bank and JPMorgan were joint bookrunners.

Sources said the tight range was possible û and warranted û since CCB is a very liquid stock and a big cap name that has attracted a lot of international interest ever since it became the first of ChinaÆs big four state-owned banks to list in Hong Kong in October 2005. And while the deal was sizeable in dollar terms compared with the average Hong Kong block this year (only three deals have been larger), it accounted for less than 0.2% of the H-share capital and only about 1.3 days worth of trading volume. Consequently, the market should have no problem absorbing the stock.

However, it is worth noting that a smaller CCB block (255 million shares) that was sold by Temasek in November was done at a discount that was almost twice as wide at 4.96%. That deal was launched at a fixed price of HK$7.09 per share, or only 4 HK cents above the placement price achieved yesterday.

The book, which was open for about five hours, attracted more than 30 investors and contained a mix of hedge funds, long-only names and China funds. According to one source, the interest from European accounts stood out after being quite weak in other recent transactions. However, it is difficult to draw any conclusions for the market as a whole from that pick-up in interest, he says, as what attracted investors to CCB was a combination of the company itself, the sector and the liquid trading in the stock.
In addition, a number of investors have been holding short positions in CCB since it started rallying in late March and some of them were believed to have seen last nightÆs placement as an opportunity to unwind those trades.

ôThe stock has been running a bit and some people are starting to lose faith in their shorts. This gave them a chance to cover their positions,ö the source says.

Chinese banks have come under increasing focus by international investors who have realised that they could offer a good investment alternative to their global peers, which continue to suffer from subprime-related losses, and that the early sell-off together with those peers may not have been entirely justified. CCB reported a net profit of Rmb32.1 billion ($4.6 billion) in the first quarter, which compares to a profit of Rmb69.1 billion for the full year of 2007.

The recent rally has reversed more than half of the share price losses incurred at the beginning of this year and CCB is now only 18% below its record close of HK$8.81 from late October. It has also tripled since its IPO at HK$2.35, which makes for a tempting sell-down for investors who have hung on to their stock since the listing.
¬ Haymarket Media Limited. All rights reserved.
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