HONG KONG Singapore state investor Temasek Holdings sold shares in two of China's largest banks for $2.5 billion, according to term sheets seen by Reuters, in a reshuffle of its sprawling $150 billion portfolio that still bets on China's long-term potential.
Chinese banks' shares have rebounded this year - the Hong Kong financial sub-index .HSHFI is up about 15 percent - after last year's 27 percent slide, though the outlook is clouded by slowing economic growth and political and regulatory hurdles, and the nation's 'Big Four' lenders last week posted weaker-than-expected quarterly earnings.
The "rebalancing move is also partly to prepare for other opportunities that may arise in China and elsewhere," Temasek spokesman Jeffrey Fang said. "Temasek continues to see the leading Chinese banks as long term proxies to the growing Chinese economy as well as the country's rising middle income groups."
James Antos, a banking analyst at Mizuho Securities in Hong Kong, said Temasek may further trim its stakes in underperforming banks, casting an overhang on shares of second-ranked China Construction Bank (CCB) and fourth-biggest lender Bank of China (BOC).
"The fact they're selling shares in the two weakest performers just a couple of days after (Q1) results might be significant," Antos said. "To me, it's signalling a longer-term investment reallocation by Temasek and obviously it's clearly negative for these two stocks."
In Hong Kong on Thursday, CCB shares were down 3.3 percent and Bank of China shares dropped 4 percent. The benchmark Hang Seng share index slipped 0.5 percent.
Two Temasek subsidiaries based in Mauritius sold about 1.61 billion CCB shares at HK$5.99 each - at the bottom of an indicative range and a near-3 percent discount to Wednesday's closing price. Its Fullerton Financial Holding sold 3.08 billion Bank of China shares at HK$3.13 per share, also at the bottom of an indicative range and at a 4 percent discount.
It was not immediately clear who bought the shares.
Bank of America Merrill Lynch and Morgan Stanley were joint bookrunners on the block deals, the term sheets showed.
After the sales, Temasek's stake will fall to about 7 percent in CCB and 1 percent in Bank of China.
The Singapore investor manages a portfolio of some 200 companies, though just 30 or so make up 80 percent of the portfolio's value. Some critics have said it should trim that down and be more focused.
Temasek, the single-biggest shareholder in Standard Chartered Bank, had added to its China bank exposure last month by buying a $2.3 billion stake in Industrial and Commercial Bank of China (ICBC), the biggest bank by assets, from Goldman Sachs.
Temasek, which translates as "sea town" in Malay, was burned by its financial industry exposure in 2008 as stakes in large European and U.S. banks plunged in value because of the turmoil in global markets. But it has kept nearly 40 percent of its investment portfolio in banks it feels are strong and capture emerging market growth.
The Singapore state investor has been shuffling its financial portfolio fairly regularly.
About two weeks ago, it sold $300 million worth of shares in India's No.2 lender ICICI Bank (ICBK.NS), and that deal came hard on the heels of an agreement to swap its controlling stake in Indonesia's Bank Danamon to boost its holding in DBS Group as part of DBS' $7.2 billion takeover of Bank Danamon.
Temasek had previously trimmed its stakes in Bank of China and CCB last July in what it called a "portfolio rebalancing," only to increase the CCB stake a month later. It further boosted its CCB holding in November, buying shares from Bank of America Corp.
(Additional reporting by Kevin Lim in SINGAPORE; Editing by Muralikumar Anantharaman and Ian Geoghegan)