Bank of America Corp has held exploratory talks with the
principal investment funds of Kuwait and Qatar about selling part of its $17bn stake
in China Construction Bank, three sources with direct knowledge of the talks
Bank of America, which owns about 10 percent of CCB's Hong
Kong-listed shares and is scurrying to raise capital for its mortgage-scarred
balance sheet, will be contractually free to sell the bank shares after August
BofA, the largest US bank by assets, is likely to sell half
its stake to shore up its Tier 1 capital, one of the sources said. Analysts
believe Bank of America needs about $50bn to meet new capital requirements.
Talks about the Chinese bank have been held with other
investors in addition to the Kuwait Investment Authority and the Qatar Investment
Authority, the sources said.
If successful, the move to sell the shares to the sovereign
wealth funds will alleviate concerns that BofA will be selling the stake in the
open market through a block deal.
Shares of CCB rose as much as 4 percent, bucking a fall in
the benchmark Hong Kong share index, as traders cut short positions and bet the
huge overhang would now not have to be absorbed on the market.
"The market must be thinking that BofA is going to
unload their entire stake to Middle Eastern SWFs without showing anything to
the street," one Hong Kong-based trader said.
Shares of the Chinese bank have fallen some 20 percent,
partly in anticipation of a BofA sale, traders said.
It was unclear if any agreement with the sovereign wealth
funds or other investors have been cemented. Sources said no talks are being
Bank of America, whose shares have fallen 27 percent in the
past week, did not mention the China investment during a widely followed
conference call that top executives held on Wednesday with thousands of
investors. Chief financial officer Bruce Thompson said on the call that asset
sales are being considered to boost capital.
"These stakes will be sold eventually," a second
source said of the Chinese bank shares. "They have been shown previously
to funds who matter."
Bank of America spokesman Jerry Dubrowski declined to
discuss whether negotiations have been held, and officials at QIA and KIA were
not immediately available for comment.
"We continue to be a significant shareholder in CCB and
we intend to continue the important long-term strategic alliance with CCB
originally entered into in 2005," Dubrowski said.
The sources sought anonymity because they are not authorised
to speak to the media.
Middle Eastern sovereign funds are familiar with Chinese
financial firms. QIA and KIA were cornerstone investors in Agricultural Bank of
China Ltd's IPO last year. KIA also invested $1bn in insurer AIA Group's Hong
BofA paid $3bn for a 9.9 percent stake in CCB, the world's
No. 2 bank by market value, before the Chinese lender's IPO in 2005. The US
bank then exercised an option to buy an extra 11 percent for $9.2 billion. BofA
sold part of its stake in May 2009.
The US bank is now left with 25.6 million shares, including
23.6 million that come out of a lock-up on Aug 29. It is free to sell the
remaining shares in 2013.
The US bank is eager to retain about half of the stake as a
bet on growth in China, one source said.
China's top three banks went public in the middle of last
decade, and each attracted large investments from US and European banks before
their offerings. The investments were marketed as a strong selling point by
underwriters, but several of the overseas strategic investors have partly or
fully exited their stakes following the expiration of lock-up periods.
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