Analysts: Share sales don't shake bank relations

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(Xinhua)
Updated: 2009-01-09 19:27

It's likely to be business as usual between Chinese banks and their foreign counterparts, even though the latter have been selling their stakes in Chinese financial institutions, analysts in Beijing said on Friday.

The analysts said recent sales of stakes in such institutions as the Bank of China (BOC) and China Construction Bank (CCB) represented an effort by the foreign holders to relieve their domestic financial stress. And the banks on both sides of several transactions said the foundation for further cooperation remained solid.

Several transactions have been making headlines, with foreign lenders, including Royal Bank of Scotland (RBS) Group and Bank of America (BOA), having reportedly either sold or considered selling stakes in large Chinese commercial banks.

United Bank of Switzerland (UBS) sold 3.378 billion H-shares in BOC on Dec 31, 2008, when the lock-up period expired.

On Wednesday, there were two similar transactions. Hong Kong tycoon Li Ka-shing sold 2 billion of his total 5 billion shares in BOC through Merrill Lynch.

And BOA, the second-largest shareholder in CCB, cut its 19.13 percent stake in the Chinese bank to 16.72 percent by selling 5.62 billion CCB shares for $2.8 billion.

On that day, overseas media reported that the RBS group was discussing divestment of its 4.3 percent stake in BOC. The UK lender bought 8.25 percent of BOC's H-shares in 2005 with Li's Magnitico Holdings Ltd and four other investors.

The BOC had a 16.85-percent stake purchased by four foreign strategic investors in 2005 before its initial public offering on the international market, including the RBS-led group, UBS, Singapore-based Temasek Holdings and the Asian Development Bank. Their lock-up periods all expired at the end of 2008.

Normal market activities

Zuo Xiaolei, chief economist with Beijing-based Galaxy Securities, described the recent selling as "completely normal market activities", saying Chinese lenders should remain confident about their prospects.

"The Bank of America made the decision to reduce its stake because of its own financial difficulties," said a statement on CCB's website. The statement said the move would not affect BOA's status as CCB's second-largest shareholder.

BOC spokesman Wang Zhaowen shared that view. It was "normal" for UBS to sell BOC shares after the lock-ups ended, he said. "It is up to the bank to choose whether it will continue to hold the stake or trim its holding."

He said BOC's operation and businesses would not be affected by the deal as the bank had been performing well.

Balance-sheet calculations

Analysts agreed that the decision of troubled foreign lenders to sell down stakes in Chinese banks was intended to improve their own balance sheets -- and perhaps make a profit.

Guo Tianyong, professor with the Central University of Finance and Economics, told Xinhua that battered foreign banks urgently needed funds to combat the impact of the financial crisis.

For example, Guo said, BOA faced a tight financial situation because of its purchases of Merrill Lynch and Countrywide Financial at a time of economic turmoil. "The lender was forced to offload stakes in Chinese lenders to raise cash," he added.

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