• JANUARY 8, 2009

Another Investor Cuts Bank of China Bet

By NISHA GOPALAN

HONG KONG -- A foundation established by Li Ka-shing, one of Asia's richest men, is the latest investor to cut its exposure to China's banking sector.

The Li Ka Shing Foundation is selling two billion shares in Bank of China Ltd. in a placement that could raise as much as US$524 million for the charitable group, according to a term sheet seen by Dow Jones Newswires and a person familiar with the situation. The shares are being placed at 1.98 to 2.03 Hong Kong dollars (about 26 U.S. cents) each, or 5% to 7.5% less than their Wednesday closing price of HK$2.14, according to the term sheet.

Explaining the sale, a spokesman for the Li Ka Shing Foundation said the group "holds many different projects and this sale is part of a normal allocation of capital." He also noted that the foundation still holds three billion shares in Bank of China, which "are part of our long-term holding and won't be sold for a long time."

Wednesday's placement comes a week after UBS AG sold its entire 1.33% stake in Bank of China. People familiar with the situation said the deal raised US$808 million for the Swiss bank.

Earlier Wednesday, Bank of America Corp. confirmed it had raised US$2.8 billion by cutting its stake in China Construction Bank Corp. to 16.6% from 19.1%.

Western banks grappling with the credit crunch and the need to raise funds have a strong incentive to cash out of these once hotly contested stakes in Chinese banks to build up their balance sheets. The same isn't true for Mr. Li's charitable foundation, which helps fund schools and hospitals in China, among other things.

However, Wednesday's placement may have been aimed at beating other sellers to the market. A lockup on Royal Bank of Scotland Group PLC's stake in Bank of China expired late last month, and any moves to dispose of that stake could put more pressure on Bank of China's share price. RBS is now 58%-owned by the U.K. government after a bailout.

Other investors in Bank of China include Singapore's state-owned Temasek Holdings Pte. Ltd. with a 4.13% stake, and the Asian Development Bank and Bank of Tokyo-Mitsubishi UFJ Ltd., which each own a 0.2% stake. The lockup on Temasek's holdings also expired last month.

Mr. Li's foundation bought the shares as part of a syndicate that was led by RBS and included Merrill Lynch & Co., which was the sole bookrunner of Wednesday's placement. Before Bank of China's June 2006 initial public offering in Hong Kong, the syndicate invested a total of US$3.1 billion to buy a 10% stake in the bank, China's second-largest lender by assets after Industrial & Commercial Bank of China Ltd.

Bank of China's shares were priced at HK$2.95 each during its US$11.2 billion IPO, which at the time was the biggest listing on record by a Chinese company. It wasn't clear how much the foundation paid for its stake.

Write to Nisha Gopalan at nisha.gopalan@dowjones.com