Goldman Sachs trims holding in ICBC by another $1 billion

Goldman’s fifth sell-down in the Chinese bank since 2009 comes at a 3% discount and is accompanied by several other equity deals, including primary offerings from Axis Bank, Ascott Reit and Fraser’s Property China.

Goldman Sachs last night trimmed its stake in Industrial and Commercial Bank of China (ICBC) through a $1 billion block trade — its fifth such sale since it first invested in the Chinese bank in 2006.

The self-led deal was launched at a fixed 3% discount and was well received by investors. According to a source, almost 100 accounts participated in the transaction and when the order books closed at 8pm Hong Kong time, it was close to three times covered.

Goldman’s stake in ICBC fell just below 5% following its most recent sell-down in mid-April last year, which means that it no longer has to disclose its holdings. However, the US bank isn’t believed to have sold any shares since then and yesterday’s sale is estimated to have accounted for just under one-third of its remaining holdings.

Sources noted, though, that the number of shares accredited to Goldman on the ICBC shareholder list on Bloomberg includes shares that it holds on behalf of Goldman Sachs Asset Management, via custody arrangements with clients, or as part of swap agreements or other client-related transactions. Still, the majority of this portion should be its own holdings and, based on the Bloomberg data, Goldman’s share of ICBC’s H-share capital will fall to about 3.4% from 4.99% as a result of this latest deal.

Based on the current market price, a 3.4% stake is valued at about $2.3 billion.

Yesterday’s sale was launched with an absolute size of about $1 billion as opposed to with a fixed number of shares, but according to sources, Goldman sold approximately 1.35 billion H-shares.

The price was fixed at HK$5.77 at launch, which suggests that Goldman felt it had a good idea of where the stock would clear. Indeed, it had wall-crossed a handful of accounts and supposedly the deal was already half-covered when the order books opened at about 5:30pm Hong Kong time.

One source noted that the fixed price may have helped attract investors who liked knowing that the price wouldn’t get squeezed higher even if the demand turned out to be strong.

The 3% discount versus yesterday’s close of HK$5.95 is in line with the 3.1% discount on the previous sell-down in April last year, which was significantly larger at $2.5 billion. However, $2.3 billion of that deal was taken up by Temasek, making the discount somewhat artificial. Goldman’s previous sell-downs in ICBC have been priced at discounts ranging from 3.9% to 6%.

So, in that context, this latest discount was quite tight. ICBC’s H-shares have also risen 46% since the most recent low in early September and are up 8.2% since the beginning of this year.

But, investors were seemingly happy to pick up the stock at this price and the deal was covered in 30 minutes, according to sources. The initial order book was hedge-fund-heavy, but as the bookbuilding progressed, Goldman picked up decent orders from long-only investors and corporate accounts and in the end the demand was quite balanced.

The buyers were mainly Asia-based, with some additional support out of Europe.

Chinese banks have been in favour among investors since the start of this year, but given that many investors were underweight banks last year when a key strategy was to be long insurance companies and short banks, not everyone has caught up with the recent movements. A decent size block trade in the world’s largest bank may therefore have been viewed by investors as a good opportunity to increase their exposure to banks.

Analysts are also still positive on ICBC despite the solid share price gains in the past five months. According to Bloomberg data there are currently 31 “buy” recommendations on the stock, versus just one “sell” and five “holds”. One reason is of course that banks are typically viewed as a proxy for the overall economy and the economic data out of China has been improving in the past month or so.

In a research note issued last week, analysts at Barclays said that 18 of 31 long-only funds that they met during a recent trip to the US were positive on Chinese banks, but only six of these 18 funds were overweight the sector. The other 12 were all still underweight.

Many accounts said that they had executed their improved views on China by going overweight Chinese property stocks instead of banks.

The Barclays analysts said they believe “there is still room for China bank stocks to move higher, as long as the positive catalysts (macro improvement, strong loan data, upward revision to bank earnings and an improvement in the global environment) play out as we expect in 1Q13.”

Last night’s trade is the smallest of Goldman’s sell-downs in ICBC so far, which is perhaps not that strange as its overall investment is reduced. The bank continues to refer to itself as a strategic shareholder in ICBC, although with a stake that is now below 3.5%, it is getting harder to view it as such. However, observers estimate that the remaining ICBC stake is still Goldman’s single largest principal investment.

Aside from the $2.5 billion deal in April last year, Goldman also raised $1.1 billion from the sale of ICBC shares in November 2011, $2.25 billion in September 2010 and $1.9 billion in June 2009.

The US bank paid just $2.58 billion for its original investment in ICBC so it has got its money back three times over already.

Yesterday’s ICBC sale is the largest block trade in Asia so far this year, ahead of Carlyle’s $796 million exit from China Pacific Insurance and the $685 million sell-down in Shin Corp by Temasek-controlled Cedar Holdings.

However, more trades continue to hit the market and the period up to the Chinese New Year holidays in the second week of February is expected to be busy as issuers and existing shareholders are trying to take advantage of the current investor appetite for equities.

Axis Bank
Indeed, several other deals were in the market last night, including a well-flagged follow-on share sale by India’s Axis Bank through a qualified institutional placement (QIP) that accounted for about 8% of the existing share capital. The deal launched at 8:30pm Hong Kong time and came with a fixed price of Rs1,390 per share, which puts the deal size at Rs47.26 billion ($877 million).

The price translates into a 1.8% discount to yesterday’s close of Rs1,415.05 on the Bombay Stock Exchange and a 0.6% discount to the regulatory floor price.

Axis Capital, Citi and J.P. Morgan were joint bookrunners.

Ascott Residence Trust
Separately, Singapore-listed Ascott Residence Trust (Ascott Reit) was seeking to raise between S$150 million and S$153.4 million ($121 million to $124 million) through a placement of new units.

The trust was offering 114.943 million shares at a price between S$1.305 and S$1.335 each. The price range represented a discount of 6.0% to 8.1% versus yesterday’s close of S$1.42, although after the closing price is adjusted for a dividend payment of 4.85 Singapore cents per unit to existing shareholders, the discount drops to 2.7% to 4.8%.

The deal was, however, marketed relative to yesterday’s volume-weighted average price (VWAP) of S$1.417. Based on that, the price range translates into a discount of 5.8% to 7.9%, while the discount to the dividend-adjusted VWAP ends up at 2.4% to 4.6%.

The offering size accounted for 9.1% of the enlarged share capital.

The trust plans to use the proceeds to fund potential future acquisitions, finance asset enhancement initiatives, repay existing debt and for general working capital, according to the term sheet.

Ascott Reit has a portfolio of serviced residences and rental housing properties across Asia-Pacific and Europe. It is managed by Ascott Residence Trust Management, which is a wholly-owned subsidiary of The Ascott, which in turn is wholly-owned by CapitaLand, one of Asia’s largest real estate companies.

DBS and Standard Chartered were joint bookrunners. The order book opened at around 5:30pm Hong Kong time, but as of late last night, the final price was not yet available.

Fraser’s Property China
Standard Chartered also acted as the sole bookrunner on a top-up placement in Hong Kong-listed Fraser’s Property China. The deal was quite small initially at just $60 million, but ended up being upsized to $90 million.

In return for the larger size, the company fixed the price at the bottom of the indicated range at HK$0.78 for a 15.2% discount to yesterday’s close of HK$0.92, according to the final term sheet. The shares were marketed in a range between HK$0.78 and HK$0.80, which represented a discount of 13% to 15.2%.

At the final size, Fraser’s Property sold 900 million shares, or approximately 13.1% of the existing share capital.

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