Other sellers of CCB shares emerge

Following the privately negotiated $7.3 billion sale of part of Bank of America's shares in China Construction Bank, which was revealed by various sources on Tuesday but has yet to be confirmed by BoA, a couple of other sellers of CCB stock emerged yesterday.

UBS was first out with a $474 million placement on behalf of an undisclosed institutional seller. The deal was completed in the early morning yesterday and announced before the Hong Kong opening. It was followed in the afternoon by a smaller trade by yet another undisclosed seller that was done off the trading desk at China International Capital Corp. That trade was for up to 200 million shares at a fixed price of HK$4.82 apiece, which means it could have raised as much as HK$964 million ($124 million), although it was unclear whether all of the shares were sold.

The emergence to two more sellers so soon after the BoA transaction suggests that some existing investors are trying to tap into potential pent-up demand for CCB shares from investors who had expected BoA to sell at least part of its big block through the capital markets. Instead, BoA sold all the shares it was allowed to offload at this point to just four parties following a private negotiation.

And, by all accounts, demand for the placement arranged by UBS was very strong with both hedge funds and long-only investors "piling in" to get their hands on the shares. One source said the order book included a lot of high-quality accounts. It is possible that some of these investors were still trying to cover short positions that may have been opened in anticipation of a BoA placement, although some of those were likely covered already on Tuesday afternoon. The share price rose about 6.3% to a high of HK$5.10 in the afternoon from a midday close around HK$4.80 after news of the private sell-down hit the screens at about lunch time Tuesday.

The strong demand for the UBS-led deal was evident in the fact that the shares were sold at a discount of only 2% versus Tuesday's close of HK$4.98. The shares were offered in a range between HK$4.84 and HK$5.03, which translated into a 2.8% discount at the top end and a 1% premium at the bottom. At first glance it may seem presumptuous to think that you could get investors to pay more than the market price, but in light of the fact that the CCB shares sold by BoA eluded most investors altogether, it may not have been overly aggressive.

Also, the trade amounted to no more than 0.3% of the outstanding share capital, which would be easily absorbed by the market on pretty much any day. In the end though, the final price was fixed at a 2% discount, or at an absolute price of HK$4.88. BoA sold its shares at a price of HK$4.20 apiece, according to sources.

CCB's share price did fall below the placement price in morning trading yesterday but there were clearly still buyers out there which kept it hovering in a range between HK$4.84 and HK$4.99. After the lunch break it did take a dive, however, dropping as low as HK$4.78 when CICC announced the second placement at a fixed price of HK$4.82 -- a 3.2% discount to the previous day's close. Unusually for Hong Kong, that placement was announced and completed while the market was open, but because of the small size, and the fact that it was launched at a fixed price on a first-come-first-serve basis, it still got done within half an hour, market participants said. CCB's share price finished the day at HK$4.79.

The deal was said to have been offered to only a small group of investors. It was unclear whether these shares may initially have been part of the BoA block, but according to several market watchers, the most likely scenario is that they came from another existing shareholder who simply decided to take advantage of the recent run-up in the share price. The shares sold through UBS were definitely not part of the BoA block.

As reported by FinanceAsia yesterday, a group of investors led by China-based Hopu Investment Management and including Singapore investment company Temasek Holdings and China Life Insurance, bought all the 13.5 billion shares in CCB that BoA had been allowed to sell since a lockup expired on May 7. They paid HK$4.20 per share, which represented a 14.3% discount to Monday's closing price of HK$4.90 and resulted in a total consideration of $7.3 billion. The placement accounted for 6% of CCB's outstanding H-share capital.

Meanwhile, a source has confirmed that the fourth, previously undisclosed, member of the Hopu-led investor group was BOC International, which bought about 2.2 billion shares directly from BoA. In an attempt to offload that risk after CCB's share price opened lower on Wednesday morning, those shares were immediately offered to other investors through a $1.2 billion placement at the same price of HK$4.20 per share. The shares were said to have ended up with fewer than 20 investors. BOCI was also hired as an agent with regard to the crossing of the shares in the deal between the Hopu-led group and BoA.