ICBC Attracts Temasek Dollars, Gazprom Business
ICBC (HKEx: 1398; Shanghai: 601398) is in a couple of separate headlines today, spotlighting 2 very different phenomena taking place at China’s largest and most aggressive bank. The first has Singaporean sovereign wealth fund Temasek increasing its stake in ICBC by a small amount, in a largely symbolic move that reflects the recent lack of interest in Chinese bank stocks by global investors. The second has ICBC in talks to underwrite a yuan-denominated bond sale by Russian energy giant Gazprom, reflecting the bank’s rising stature on the global stage as China seeks to internationalize its local currency.
Let’s start with the Temasek story, which dates back more than 2 years ago when the Singaporean fund purchased a major stake in ICBC from Goldman Sachs (NYSE: GS) for $2.5 billion. (previous post) Since then Temasek has boosted its ICBC stake by small amounts, including a purchase last summer. (previous post) According to a new filing with the Hong Kong stock exchange, Temasek has just boosted its ICBC stake yet again, buying another 34.6 million shares for an average price of HK$4.935 each. (company announcement)
This latest purchase cost Temasek a relatively modest HK$170 million ($22 million), and raised its stake in ICBC to 9 percent of the bank’s Hong Kong-listed shares from a previous 8.96 percent. Based on my own calculations using that data, Temasek’s stake in ICBC would now be worth about $5 billion, meaning it has made a relatively strong return on its original investment so far.
More broadly speaking, shares of Chinese banks have performed poorly over the last 5 years, and have looked especially weak over the past year. That’s because the group has embarked on a massive fund-raising drive this year through the issue of bonds and new shares. They’re doing that to bolster their balance sheets after a state-ordered lending binge that saw them make billions of dollars in questionable loans between 2008 and 2010. (previous post)
When I last wrote about the fund-raising drive in August, ICBC and 2 of its peers had announced plans to raise a collective 400 billion yuan ($63 billion) in new capital through new share and bond issues. That kind of fund-raising hints at big problems in the banks’ loan portfolios, and ICBC’s shares are currently down about 10 percent this year as investors have avoided the lender and other banking stocks. Temasek’s purchase comes as a small vote of confidence in ICBC’s future, and I do expect the bank could be a good longer term buy even as its shares undergo more turbulence over the next 1-2 years.
Next let’s look at the other ICBC headline that says the bank is in talks to potentially underwrite a major bond offering for Gazprom. (English article) This particular story has some political background, since Gazprom has recently lost access to its traditional dollar- and euro-denominated funding markets due to US and EU sanctions against Russia for its role in helping to fuel the current instability in Ukraine.
The latest reports indicate the talks between Gazprom and ICBC are still quite preliminary, with the former only saying it had held talks about hiring the latter as to underwrite a yuan-denominated bond, also known as a dim-sum bond. Any such bond issue would come just months after China signed a 30-year gas supply deal with Gazprom worth $400 billion, as part of growing trade ties between China and Russia.
The reports cite an analyst saying a yuan bond issue would be a move of last-resort by Gazprom due to its inability to raise money from more traditional sources as long as western sanctions remain in place. Still, ICBC’s role in this instance does reflect its very real rise as an alternate funding source for developing nations. Accordingly, I expect we’ll see a growing number of developing market companies look to ICBC and other Chinese banks to help them raise funds in the years ahead.
Bottom line: Temasek’s boosting of its ICBC stake and a potential new bond underwriting deal with Gazprom reflect the lender’s strong longer-term prospects despite short-term pressures due to an ongoing recapitalization.
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