A branch of China Construction Bank Corp in Hai'an, Jiangsu province. Temasek Holdings Pte has raised HK$28.2 billion ($3.63 billion) by selling stakes in China Construction Bank Corp and Bank of China Ltd. [Photo / China Daily]

State-owned investment company transaction raises $3.63 billion

LONDON - Temasek Holdings Pte, Singapore's State-owned investment company, raised HK$28.2 billion ($3.63 billion) selling stakes in China Construction Bank Corp (CCB) and Bank of China Ltd (BOC), two of the mainland's three biggest banks.

Temasek sold about HK$18.8 billion of shares in BOC and about HK$9.4 billion in an offering of CCB stock, according to data compiled by Bloomberg. Overseas investors, including Bank of America Corp, have trimmed more than $20 billion in holdings in Chinese lenders since 2009. Chinese bank stocks fell on Tuesday after Moody's Investors Service said problem loans to local governments could exceed official estimates.

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Temasek, which has focused on emerging market investments, will probably say in its annual report the value of its assets rose last year, analysts said. "The sell-down is part of Temasek's consolidation of their share holdings in Chinese banks," said Stanley Li, an analyst at Mirae Asset Securities (HK) Ltd in Hong Kong, who has "hold" ratings on the two banks. "This may reflect some of its concerns about the banks."

Fullerton Financial Holdings Pte, a unit of Temasek, sold 5.19 billion BOC shares for HK$3.63 each, 6 percent less than Tuesday's closing price of HK$3.86 on the Hong Kong Stock Exchange. Cairnhill Investments Pte and Crescent Investments Pte, both controlled by Temasek, sold 1.5 billion CCB shares for HK$6.26 each, a 3.4 percent discount to Tuesday's closing price of HK$6.48.

The extra 3.5 trillion yuan ($540 billion) of local government liabilities reported by Moody's on Tuesday, coming on top of the national audit office's findings last week of 10.7 trillion yuan in debt, could fuel concern that lenders will be unable to absorb losses on defaults.

Investors including Bank of America, Goldman Sachs Group Inc and Royal Bank of Scotland Group Plc have sold stakes in Chinese lenders to bolster capital as global regulators tighten requirements following the credit crisis.

Bank of America, the biggest US lender by assets, might sell some of its $21 billion stake in Beijing-based CCB, three people briefed on the plans said last month. The Charlotte, North Carolina-based lender was the second-biggest shareholder in CCB at year-end, with Temasek being the third-largest investor, according to Bloomberg data.

A lockup on 12.4 billion Hong Kong-listed Agricultural Bank of China Ltd (ABC) shares held by investors including Standard Chartered Plc and Qatar Investment Authority expires this month. ABC's listing raised $22.1 billion in the world's largest initial public offering in July 2010.

Temasek, set up in 1974, bought $1 billion of stock in CCB's initial public offering in 2005. The IPO price was HK$2.35. It also purchased a 5.1 percent stake in the Chinese lender from China SAFE Investments Ltd. in August the same year, according to its annual report that year.

Morgan Stanley led the share sales by Temasek's units, according to the offering term sheets. Jeffrey Fang, a spokesman for Temasek, declined to comment. Fullerton Financial offered the shares in BOC for HK$3.60 to HK$3.67 each, the term sheet showed. Temasek owned about 10.5 billion shares, or 12.5 percent, of BOC, according to a Dec 31 filing. It paid about $1.5 billion for a 5 percent stake in the lender before its IPO in June 2006.Cairnhill Investments and Crescent Investments offered about 1.5 billion shares in CCB for HK$6.22 to HK$6.35 each. Temasek held 7 percent, or 16.9 billion shares, of CCB, according to company filings.

Temasek's assets probably rose to about S$200 billion ($163 billion) in the 12 months to March 31, surpassing the S$186 billion record a year earlier, according to Victoria Barbary, a senior analyst at Monitor Group in London, and Song Seng Wun, an economist at CIMB Research Pte in Singapore.

Bloomberg News