HONG KONG — Bank of America Corp., seeking to bolster its financial standing in the face of new government requirements, raised US$7.3 billion from Asian investors Tuesday through the sale of a roughly 5.7% stake in China Construction Bank Corp., according to people familiar with the matter.
For the U.S. lender, the move marks a significant step to raising US$34 billion in capital needed to meet the requirements of a new U.S. government stress test for lenders. It also marks the latest turn by a Western financial firm toward deep-pocketed Asian investors, who have become key sources of funding during the global financial crisis and appear keen to invest in the region's financial industry.
On Tuesday, the Charlotte, North Carolina, bank sold 13.5 billion shares, or one-third of its 16.7% stake, in China Construction Bank for HK$4.20 a share, according to the people familiar with the situation.
China Life Insurance Co., Singapore sovereign wealth fund Temasek Holdings Pte. Ltd., and private equity fund Hopu Investment Management Co. joined hands to buy the block of shares.
The price represents a 14% discount to Monday's closing price of HK$4.90 a share. In recent days, banks representing the U.S. lender had sought buyers at higher prices that more closely matched current market levels, according to people who had been approached. A reduction in price helped seal the deal, said one person familiar with the matter.
A Bank of America spokeswoman in Singapore declined to comment.
Despite the discount, a quick sale marks an important step in Bank of America's effort to meet the U.S. Treasury's stress test, which required it to raise the most among U.S. lenders.
Bank of America intends to raise a further US$17 billion via a new common stock offering and conversion of private preferred shares into common stock. It hopes further asset sales and strong earnings will help plug the remainder of the gap.
Bank of America's remaining stake in the Chinese lender is locked down until August 2011. Both sides have previously said that any share sell-down won't affect their strategic partnership.
For the Asian investors, the deal represents a bet on the continued health of China's financial landscape. China's continued economic growth has helped lift investor sentiment in recent weeks, though economists and industry observers are closely watching the effect of the Chinese central government's push earlier this year to spur more lending.
The amount each investor took couldn't be determined, but one person involved said China Life purchased the largest portion. It wasn't immediately clear whether the state-owned China Life Group or its listed arm, China Life Insurance Co., was the party purchasing shares.
Singapore's Temasek, which is also a large investor in Bank of America, already held 5.7% of China Construction Bank's shares. China Life Insurance Co. also purchased a small chunk of shares in China Construction Bank around the time of the bank's initial public offering.
Hopu Fund is a new investor. The $2.5 billion private equity fund established by Chinese banker Fang Fenglei has aggressively targeted Chinese bank stocks as foreign investors have sold down their stakes. In January, it bought around $400 million of shares in Bank of China Ltd. from Royal Bank of Scotland Group PLC, people familiar with the situation said at the time.
Mr. Fang's investors, which include Goldman Sachs and Temasek, have done very well on that deal so far. Bank of China's shares closed at HK$2.93 each Tuesday, compared with Hopu Group's HK$1.71 purchase price.
China Construction Bank's stock price has been on a rollercoaster ride since last week, when Bank of America's lock-up on the 5.6% stake expired. On Tuesday they finished at HK$4.98, up 1.6%.
Asian investors have provided shelter to a number of Western firms. Japan's Mitsubishi UFJ Financial Group Inc. invested $9 billion in Morgan Stanley in October. Temasek invested in the former Merrill Lynch over the past two years. But a number of those investments have fallen in value as the financial crisis has worn on.