Bank of China shares skid after Temasek trims stake

27 Nov 07

Bank of China’s shares slid as much as 9.4 percent on Tuesday after Temasek Holdings sold a $567 million stake amid market worries over the lender’s exposure to the U.S. subprime mortgage crisis.

Singapore’s state investment agency, the Beijing-run Bank of China’s second-largest foreign shareholder, unloaded part of its holding after the close of trade on Monday at a discount of 3.5 percent to the stock’s closing price.

Shares in Bank of China, which has the biggest subprime exposure among China’s large lenders, pared losses to close 5.2 percent lower, underperforming Hong Kong’s Hang Seng Index which ended down 1.51 percent.

“I’m sure the whole subprime issue went through the minds of the Temasek officials involved,” said Warren Blight, banking analyst at Fox, Pitt-Kelton in Hong Kong.”

“The whole market is expecting provisioning to get worse – as for all the banks with subprime exposure, but I think the market has priced in a lot of that downside.”

Late last month, Bank of China reported subprime-related exposure of about US$8 billion as of the end of September and booked US$643 million in provisions and reserves for the third quarter. Its overseas flagship, Bank of China Ltd , reported subprime-related exposure of US$1.23 billion.

Goldman Sachs cut its rating on Bank of China to neutral on Monday, citing pressure on net interest margins for its foreign exchange assets, and exposure to subprime-related mortgage-backed securities and collateralised debt obligations.

Sovereign Funds

A Temasek unit sold 1.082 billion shares in the lender at HK$4.09 each in a deal handled by Morgan Stanley , a source familiar with the deal said. The pricing came at the bottom of a HK$4.09-HK$4.12 range and the sale trims Temasek’s stake in Bank of China to 4.13 percent from 4.6 percent.

“We review our portfolio from time to time and may rebalance it against new opportunities. As part of our active portfolio management, we have successfully placed out a tranche of 1.08 billion BOC shares which we had subscribed to at the time of the bank’s IPO,” Temasek’s Yap Chwee Mein, Managing Director, Investment and China, said in an e-mail. “We remain optimistic on China’s long-term potential.”

Royal Bank of Scotland is Bank of China’s largest foreign shareholder.

Bank of China shares have risen nearly 44 percent from their Hong Kong IPO debut in June 2006 through Monday, before Temasek’s sale.

“They know that is involved in subprime mortgage. The question is why are they trimming their holdings now? Maybe the losses are increasing. Temasek knows more information than the average investor. Or maybe they think they’ve had enough profits,” said Louis Tse, sales director at VC Brokerage.

The deal comes as multi-billion-dollar sovereign wealth funds are increasingly prominent as investors in high-profile – and sometimes struggling – companies.

On Tuesday, U.S. financial giant Citigroup agreed to sell a US$7.5 billion stake to the Abu Dhabi Investment Authority, making the Gulf government its largest shareholder, while a private equity fund owned by the ruler of Dubai said on Monday it made a “substantial investment” in Japanese electronics and entertainment giant Sony Corp (Additional reporting by Rita Chang in Hong Kong & Saeed Azhar in Singapore; Editing by Anne Marie Roantree & Lincoln Feast)

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