Bank of America Corp. (BAC) will almost double its stake in state-owned
banking giant
China Construction Bank Corp., and will control
nearly 20% of China’s second-largest bank when the deal is finalized.
The official announcement yesterday (Monday) ends months of speculation that
the Charlotte, N.C.-based BofA would dump part of its three-year-old investment
the Beijing-based bank to offset the effects of the global financial crisis. In
an article on Saturday, Money Morning reported that the deal was close, though noting that the actual
timing was unknown.
Bank of America plans to be “a long-term and significant strategic investor
in CCB,” the U.S. lender said in a statement. The shares to be acquired to carry
a restriction, however: They can’t be sold before Aug. 29, 2011, unless the
China bank provides special permission.
According to Caijing– the influential China
business magazine that actually broke the story of the deal – BofA is paying
about 36 cents a share (2.46 yuan), or 1.2 times the Beijing-based lender’s book
value. Bank of America spokesman Scott Silvestri would not comment on that
report, or a similar story circulated by Xinhua, the
state-run China News Agency, that would represent about a 40% discount to where
the bank’s Hong Kong-listed shares closed earlier today.
Following the purchase, Bank of America would own 44.7 billion of the Class
“H” shares of China Construction Bank, worth roughly $24 billion,
Reuters reported. The initial investment has been a
major financial success for BofA. Shares of China Construction Bank have risen
75% since the bank’s October 2005 initial public offering (IPO) – despite having fallen by more than half from their
October 2007 peak, Reuters said.
Bank of America, which last month raised $10 billion to help fund the
purchase of Merrill Lynch & Co. Inc. (MER), is lifting its stake in China Construction Bank from
10.8% to 19.1% percent, Bloomberg News reported.
Once the deal is finalized, BofA will hold 44.7 billion shares of the
Beijing-based lender. In fact, to actually purchase the shares, BofA will
exercise an existing option with China
SAFE Investments Ltd. (Central Huijin Investment Co.), a state investment
arm that is the Beijing bank’s biggest stakeholder.
“China Construction Bank is tightly tied to the government and they are a
preferred bank,” Richard Wottrich, managing director of Dresner Partners, a
Chicago-based investment-banking firm, told Bloomberg.
“China will probably return the favor someday by doing something for Bank of
America if [it needs] help.’”
Bank of America received $15 billion from the U.S.
