Temasek picks up BoA Merrill's portion of CCB rights issue

In an unusual move for Asian rights issues, Temasek has agreed to buy Bank of America Merrill Lynch’s entire entitlement of new shares in China Construction Bank’s ongoing rights issue. News reports in recent days had suggested that the US bank, which is the second largest shareholder in CCB with 11.4%, may not be interested in buying more shares, which had caused some concern that the $9.2 billion offering could end up undersubscribed.

BoA Merrill could have disposed of its nil-paid rights in the open market, but the agreement to sell them directly to Temasek should be positive for CCB since the latter is already a shareholder in CCB and is also expected to be in it for the long-term (it invested in the Chinese lender in connection with its IPO in October 2005 and hasn’t sold any shares since). In a statement filed with the Hong Kong stock exchange last night, CCB confirmed the sales agreement, which had been reported by Reuters earlier in the day, and said Temasek had agreed not to sell the H-shares that it can buy with the rights for at least three months.

Temasek already owns about 5.8% of CCB, which gives it the right to buy approximately 950 million H-shares through the rights issue. Together with the 1.79 billion H-shares it will be entitled to through the BoA Merrill nil-paid rights, its total take-up should be roughly 2.74 billion shares, which should cost it about $1.5 billion.

CCB is offering 0.7 rights shares for every 10 existing A- and H-shares and has set the price at HK$4.38 per new H-share and the equivalent Rmb3.77 per A-share. When the offer was announced last Monday night, the H-share price represented a 42.7% discount versus the latest close of HK$7.64 and a 41% discount to the theoretical ex-rights price (Terp) which was estimated at HK$7.43.