Thursday, November 29, 2007

Has Temasek’s move undermined Bank of China’s credibility?

Bank of China posted its biggest drop in more than three weeks in Hong Kong trading after Singapore's Temasek Holdings sold part of its 4.6 percent stake in China's third-largest bank. Singapore's state-owned Temasek is selling 1.08 billion Bank of China shares at HK$4.09 to HK$4.12, according to investors, raising up to HK$4.46 billion ($573 million).

Temasek is trying to “reduce the exposure in financial holdings and not to be a substantial shareholder of any big company,'' said Ronald Chan, who manages $3 billion of Asian equities at Fortis Investment Management in Hong Kong.

Bank of China has gained 36 percent in Hong Kong and more than doubled in Shanghai since its debut in 2006, catapulting its market value to $196 billion, more than that of Citigroup Industrial & Commercial Bank of China, China Construction Bank and Bank of China are among the world's top four banks by that measure as the nation's economic growth fuels demand for loans while global peers suffer from the U.S. subprime meltdown.

The sale will reduce Temasek's stake to 4.1 percent. Financial services companies made up 38 percent of Temasek's portfolio of more than $100 billion at the end of March, compared with 35 percent a year earlier. The Singapore investment company confirmed the number of shares it's selling, declining to provide details on the price.

Temasek, which owns its BOC stake through its unit Asia Financial Holdings, now known as Fullerton Financial Holdings, is Bank of China's fourth-largest shareholder after Central Huijin Investment, HKSCC Nominees and Royal Bank of Scotland Group.

“We review our portfolio from time to time and may rebalance it against new opportunities,'' Yap Chwee Mein, Temasek's managing director of investment and China said. “We remain optimistic on China's long-term potential.''

Will other companies buy the shares that Temasek sold as China’s economy pick up quickly?