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BofA opens US$1.5b share offer to exit 8-year investment in CCB
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Bank of America Corp yesterday launched an up to US$1.5 billion share offering in China Construction Bank, exiting an eight-year investment in China’s second-biggest lender in a bid to shore up its own balance sheet.
The US bank is offering 2 billion Hong Kong-traded shares of CCB in a range of HK$5.63 (73 US cents) to HK$5.81 each, according to a term sheet of the deal. The price is equivalent to a discount of up to 5.1 percent to yesterday’s close of HK$5.93.
The deal follows a massive cleanup in BofA’s balance sheet in recent years, worth about US$60 billion, from the sale of non-core investments as Chief Executive Brian Moynihan tries to boost the bank’s capital ratios. The sale also comes about two years after the bank raised a combined US$14.9 billion from selling shares in CCB to a group of investors that included Singapore’s Temasek Holdings.
The US bank unveiled an initiative in 2011 aimed at saving US$8 billion a year. The North Carolina-based bank joins a list of Western banks that have cut their ties with Chinese financial firms in recent years.
The investments by the US and European banks were made as the big Chinese lenders were preparing for their market debuts nearly a decade ago. While the ties were profitable and helped Chinese lenders become some of the world’s biggest banks, few products or strategic benefits emerged.
BofA’s investment in CCB dates to 2005 when it paid US$3 billion for a 9.9 percent stake in the Chinese bank before its initial public offering.
At the time, then BofA Chief Executive Kenneth Lewis said the partnership was designed to give the bank increased access to roughly 1.3 billion Chinese consumers, while CCB would benefit from BofA’s US retail banking experience.
The US bank raised its holdings in following years to 25.6 billion shares, before paring it down as it focused on bolstering its capital base. BofA launched yesterday’s sale after a lock-up on its remaining stake expired last month.
The sale also comes at a time when bad loans at Chinese banks are showing signs of a pickup as the economy loses steam after several years of strong growth. As a result, several Chinese lenders are eying to launch equity sales to bolster their capital base.
Earlier this year, Goldman Sachs sold out of its seven-year investment from the Industrial and Commercial Bank of China.
Some foreign banks continue to hold on to their investments in Chinese lenders. Among them are HSBC Plc, which owns 19.9 percent in the Bank of Communications and Spain’s BBVA has a 15 percent stake in China CITIC Bank.
CCB shares are down 4.7 percent since the start of this year in Hong Kong, outperforming the 9 percent fall in the financial sub-index of the Hong Kong stock exchange in 2013.
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