Buying it back

5 September 2011 By Wei Gu

China’s main foreign reserve fund has reportedly bought shares sold by Bank of America in the Chinese lender. The price looks low, and the shares yield more than US Treasuries. But increasing state exposure to banks, and using reserves to stabilise their share prices, isn’t wise.

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A Chinese Consortium including the State Administration of Foreign Exchange, the National Social Security Fund, and Citic Securities were among the buyers of an $8.3 billion China Construction Bank stake sold by Bank of America on Aug. 29, according to the Financial Times.

SAFE, which manages the bulk of China’s $3.2 billion in foreign reserves, used Hopu Capital, the Beijing investment firm established by former Goldman Sachs banker Fang Fenglei, to mask its participation. Singapore state fund Temasek [TEM.UL] was also a buyer, said people familiar with the situation.

The investors bought 13.1 billion of CCB’s Hong Kong listed shares for HK$4.93 each, an 11 percent discount to the stock’s Aug. 29 closing price of HK$5.55. The deal is expected to close in the third quarter. CCB shares traded at $5.59 on Sept. 5.

Graphic: CCB-BofA timeline

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