Temasek sells China Construction Bank shares

The fixed-price transaction comes only two days after the Singapore investment company sold shares in Bank of China.
Temasek Holdings has sold HK$1.99 billion ($255 million) worth of shares in China Construction Bank (CCB) through a block trade only two days after completing a similar sell-down in Bank of China (BOC).

The Singapore investment company hasnÆt made any comment on why it is selling, other than to say that both transactions are part of its normal portfolio management. However, there is speculation that it is trying to free up money for a different investment or acquisition, and the CCB and BOC shares are obviously quite easy to monetise given that both stocks are very liquid. Having invested in both banks before and during their respective IPOs, Temasek is also sitting on sizeable profits in both stocks.

Based on the fact that these sales make up only a small portion of TemasekÆs total holdings, it seems clear, however, that the transactions are being done for financial rather than strategic reasons.

YesterdayÆs sale of 280 million CCB shares accounted for 2.1% of TemasekÆs total stake in the bank and represented no more than 0.1% of the outstanding H-share capital and 0.5% of the H-share free-float. According to the Hong Kong stock exchange website, Temasek has sold no shares since CCBÆs IPO in October 2005 and, prior to yesterdayÆs transaction, it owned 6% of the H-shares on issue.

The sale of shares in BOC on Monday was twice as large at $570 million, but again accounted for only 9.1% of TemasekÆs total investment in the lender and reduced its stake to about 14.2% from 15.5%.

The CCB block was offered to the market at a fixed price of HK$7.09 per share, which represented a 4.96% discount to yesterdayÆs closing price of HK$7.46. The discount was viewed as attractive given the small size of the deal relative to the market capitalisation. It also accounted for less than one dayÆs trading volume.

According to one source, the order book was covered after about one hour and ended up attracting more than 40 investors. Long-only funds took a greater portion of the deal than is normal for a block, but the increased volatility in the secondary market in recent weeks has led to a decreased hedge fund appetite for new stock.

Or as one source explains it: ôHedge funds are reducing their risk exposure, while long-only funds are looking for good buying opportunities. As a result you are seeing relatively more demand from long funds at the moment.ö

Under normal circumstances, Temasek would typically have divested a stake this size by pushing the shares out in the market little by little, but amid the current volatility, it may have felt there would be less price risk to do it in one go through the capital markets. The decision suggests that it was happy with the price achieved on the BOC block earlier in the week û something that was also obvious by the fact that Morgan Stanley, which arranged the BOC trade, was asked to handle the CCB sale as well.

Contrary to yesterdayÆs transaction, the sale of BOC shares was done through a bookbuild exercise, although the final price was fixed at the bottom of the offering range. By most estimates, the range was considered very aggressive though and the final price offered a discount of only 3.5%. The stock fell 5.2% on Tuesday immediately following the sale and another 0.25% yesterday, leaving the share price at HK$4.01 or 2% below the placement price.

The CCB sell-down came on a day when the Hong Kong market gained 0.6%, but with the Hang Seng Index having fallen 1.5% the day before there is no evidence that the recent downturn is over. This was further highlighted by the fact that Sinotruk tumbled 15.7% in its trading debut yesterday, adding to the woes for a large number of listing candidates that are either already in the market or in the immediate pipeline.

CCBÆs share price gained 1.8% yesterday and has risen 217% since its initial public offering. However, it has fallen 15.1% from a high of HK$8.79 on October 30, which may have contributed to TemasekÆs desire to monetise some of its holdings.
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