Goldman Sachs Group is selling a stake in Industrial & Commercial Bank of China to Temasek Holdings in its largest divestment of the world’s biggest bank by market value.
The Wall Street firm is selling $2.5 billion of shares at HK$5.05 each, according to two people with knowledge of the matter. It sold 3.55 billion shares, or 4 per cent of ICBC’s Hong Kong-traded shares, to Temasek, the Singapore state-owned investment group said. Temasek, which is increasing stakes in China’s biggest banks, paid $2.3 billion for the stock, based on the per-share price and stake size.
Goldman Sachs, Royal Bank of Scotland Group Plc and Bank of America Corporation were among foreign banks that spent a combined $22 billion between 2004 and 2006 to purchase stakes in Chinese lenders ahead of their initial public offerings. Shares of ICBC have rallied more than 40 per cent since hitting a 2 1/2-year low in October as concern eased that Europe’s debt crisis would lead to a further economic slowdown in China. “The ICBC stocks have done well for them,” Sandy Mehta, chief executive officer at Hong Kong-based Value Investment Principals Ltd., said by telephone today. “You’ll continue to see sales of Chinese bank stocks by these banks. It’s a continuation of the trend. It’s been happening now for a year.”
The MSCI China/Financials Index, which includes ICBC, has tripled in value in the past eight years.
The price of Goldman Sachs’ stake is a 3.1 per cent discount from the HK$5.21 close of ICBC shares on April 13. The stock fell 9 per cent from its Feb.29 peak this year.
ICBC shares dropped 0.8 per cent to HK$5.17 at the close of trading in Hong Kong, the first decline in three days. The stock trades at 6.4 times estimated earnings, down from a multiple of 9.9 a year earlier, according to data compiled by Bloomberg.
The sale is the fourth and biggest by value for New York-based Goldman Sachs. The US securities firm raised $1.1 billion in November selling shares in ICBC at HK$4.88 each.
The deal represents about 40 per cent of Goldman Sachs’ 8.78 billion shares of ICBC as of Dec.31, according to data compiled by Bloomberg. The fifth-largest US bank remains ICBC’s second-biggest holder of H shares, based on the shareholding data of the Chinese lender’s Hong Kong-traded stock.
Goldman Sachs’ stake in Beijing-based ICBC generated a $517 million pretax loss in 2011 compared with a $747 million gain a year earlier, the firm disclosed on Jan.18. Goldman Sachs, which acquired its ICBC stock in 2006, doesn’t report other stock investments in Asia in its annual filing.
“Investment banks need a healthy profit,” said Mehta. “I don’t think Goldman needs the capital as much as others. It’s certainly not urgent to have a distressed sale on the part of Goldman, but it just reflects they need a healthy profit from this transaction.”
Temasek has been increasing holdings in China Construction Bank Corporation (939) and Bank of China Ltd. (3988) as global lenders divest. It bought 3.77 billion shares of China Construction Bank from Bank of America on Nov.11, increasing its stake in the second-largest Chinese lender by value, and raised its investment in Bank of China, the nation’s fourth biggest, to 7.07 per cent from 6.96 per cent after buying 97.1 million shares in August.
“Temasek’s underlying strategy is investing in growth areas like China and key sectors like banks and this is essentially an opportunity that came up,” said Song Seng Wun, a regional economist at CIMB Research Pte in Singapore. “Asia is likely to lead the growth in the near-to-middle term, so all these deals are essentially to anchor that, and banks are basically the lifeline and heart of any economy.”
The Singapore investment fund, which managed S$193 billion ($154 billion) as of March 2011, said in a statement today that the purchase will give it a deemed interest of 5.3 per cent in the Hong Kong-listed shares of ICBC, which includes stakes held by its units and associates.
ICBC widened its lead as the world’s most profitable lender last month after reporting a 17 per cent increase in fourth-quarter net income. The per centage of financial services companies in Temasek’s holdings rose to 36 per cent from 35 per cent as of March 2011.