China Construction Bank Corp shares rose yesterday after Bank of America Corp agreed to boost its stake in the Hong Kong-listed bank for about HK$14.5 billion (US$1.86 billion).
Bank of America, the second-largest United States bank by assets, said late on Tuesday that it would exercise part of a call option to buy 6-billion CCB's H shares next week, for about HK$2.42 each. This will increase its holding to 10.75 percent from 8.2 percent.
The price represents a 63.6-percent discount to CCB's Tuesday close of HK$6.65.
CCB, China's second-largest lender, rose 2.55 percent to 7.24 yuan (US$1.04) in Shanghai and was up 0.75 percent to HK$6.70 in Hong Kong yesterday.
The market had speculated that Bank of America, among the US lenders who were hard hit by the subprime mortgage crisis, may dispose of CCB shares at market prices later this year to book handsome gains to help cover the writedowns. The current move to buy new shares at a significant discount could also preserve the bank's ties with CCB.
The 6-billion shares cannot be sold until August 29, 2011 without CCB's consent.
However, the US lender will be able to sell part of the existing 8.2-percent stake when a three-year lockup period expires in October this year.
"We think Bank of America will sell part of CCB holdings later to shore up its balance sheet and this will add pressure on CCB's share price," Wu Jie, an analyst with Dao Heng Securities, wrote in a note.
Under a deal agreed in June 2005 when Bank of America first invested US$3 billion for 9 percent in CCB before the Chinese lender's Hong Kong listing, the US bank has the option to raise the holding to 19.9 percent through 2010. The original stake was diluted to 8.2 percent by a share offering of CCB.
CCB has risen more than 180 percent since its Hong Kong IPO in 2005, on the back of fast domestic loan growth.
(Shanghai Daily May 29, 2008)
