Bank of America to exercise portion of China Construction Bank option
28 May 2008
Belying analysts expectations that the second largest US bank by assets, Bank of America would would be forced by the weakening US economy to divest its holding in China's second largest bank, China Construction Bank Corporation, the US bank yesterday said that it had given notice to the Chinese bank and SAFE Investment Limited (Huijin) of its intention to exercise part of the option to purchase further common shares in the bank.
SAFE Investment Ltd (Huijin), is the Chinese government body that controls China Construction Bank from whom Bank of America will buy the shares new shares that would raise its stake from 8.2 per cent to 10.75 per cent. The news of the fresh acquisition led to a 7-per cent rise in Bank of America's shares.
The option would be exercised under an agreement Bank of America has with Huijin reached when Bank of America first invested in China Construction Bank in June 2005 for the 6 billion H-shares it intends to purchase on or around 5 June 2008 for approximately $HK2.42 amounting to $1.86 billion under a formula in the agreement. Under the stock purchase agreement the US bank can increase its stake to just below 20 per cent
At the time of the IPO Bank of America had paid $3 billion for its initial stake in 2005. The current market value of the shares is $5.11 billion, as the Chinese banks's stock has risen 83 per cent since its IPO in October 2005.
After the exercise, Bank of America would hold about 25.1 billion H-shares valued at around $21.4 billion, and representing about 10.75 per cent of the Chinese bank's issued shares.
However, the latest transaction would yield no immediate profit to Bank of America as the new acquisition have a three-year lock-in period till August 2011, and cannot be sold without the prior consent of the Chinese bank.
