Temasek raises $3.6 bln from sale of China banks' stakes

[yhendra]

Hi Dennis,

What are your views on this headline?

Is this a sign/clue of last rally coming into place, where Temasek is going to make more money by investing it before market turning.
OR a sign that market-turn is coming down?

$3.6B of S$186 billion (Temasek's total portfolio in its website) is about 2%.
Small? Big?
Percentage-wise is very small, however, the amount of money is no joke for MOST us! $3.6B = $3,600,000,000.

Source: http://www.reuters.com/article/2011/07/ ... 3k20110706

Selldown is in Bank of China & China Construction Bank

* Comes just ahead of Temasek's annual review

* Offer generated strong demand, books covered within an hour -source

* Temasek has been building up cash levels recently

* BOC and CCB shares fall in HK

By Denny Thomas and Saeed Azhar

HONG KONG/SINGAPORE, July 6 (Reuters) - Singapore's Temasek sold stakes in two of China's biggest banks on Wednesday to raise $3.6 billion, in a move likely aimed at reducing the sovereign investor's big exposure to the financial sector and building up a warchest.

The sale of stakes in Bank of China and China Construction Bank pushed down shares of the two lenders in Hong Kong by more than 3 percent on Wednesday and triggered broader weakness in the territory's stock market.

Temasek's move is reminiscent of late 2007, when it made a similar selldown in the two Chinese banks a few weeks ahead of its large stake purchase in Merrill Lynch, an investment that turned sour during the global financial crisis.

The Singapore investor has been recently building its cash levels through profitable exits from investments such as food and beverages company Fraser & Neave in which it sold its stake for S$1.3 billion in July last year, making a hefty gain of 49 percent.

In October last year, Temasek sold a $607 million stake in South Korea's Hana Financial Group.

Temasek owned about 7 percent of China Construction Bank and the sale of 1.5 billion Hong Kong-listed shares would lower its stake to just over 6 percent, according to Thomson Reuters data. Temasek would own about 6 percent of Bank of China's outstanding Hong Kong shares after it sold 5.2 billion shares.

"I am quite sure that they would be looking to make that money work somewhere down the line," said Song Seng Wun, regional economist at CIMB in Singapore."

Song said the move could be sparked by concerns about the global economy with risk emerging from Europe while the U.S. economy is also going through a difficult patch.

"It is to take the money off the table and perhaps putting them to use when the opportunity comes again."

The stake sales come ahead of its annual review planned later this month, which is set to show that exposure to the financial sector was cut from the 37 percent at end-March 2010.

Temasek's portfolio probably rose in the most recent financial year for the second year in a row, as it followed a cautious strategy of staying invested close to home, a path it has pursued since the financial crisis.

The gains in Temasek's portfolio are still likely to pale in comparison to the 43 percent surge seen in 2009/10 when it recovered from the pain it suffered during the financial crisis following billions of dollars of losses on Western banks.

With one-third of its portfolio in Singapore companies, Temasek tends to outperform the Straits Times Index , which gained about 8 percent between April 1 2010 to March 31 this year.

The state investor is also likely to formally respond to speculation that its chief executive Ho Ching may leave, which she recently denied in an internal communication to staff.

"They're recovering their portfolios, number one, and number two it is a transition period and during the transition period I think on average people normally do not want to take too many too big bets," said Michael Preiss, chief equity strategist at Standard Chartered Bank.

SALE COVERED IN HOURS

The Bank of China stake was sold at HK$3.63 a share, raising HK$18.84 billion ($2.4 billion), while the CCB stake was sold at HK$6.26 a share, raising HK$9.39 billion, a source familiar with the matter told Reuters.

The large block sales were covered within an hour after going to market and the books were closed in three hours, showing strong appetite from investors for the deal, added the source, declining to be named due to not being authorised to speak to the media.

By midday, Bank of China shares were down 3.4 percent at HK$3.73 while CCB shares had lost 2.9 percent to HK$6.29. The benchmark Hong Kong share index was down 0.4 percent.

Temasek bought a 10 percent stake in Bank of China in 2005 for $3.1 billion and invested $500 million in the bank through its initial public offering. It invested over $1 billion in CCB's 2005 IPO.

Temasek has been paring exposure to the financial sector after suffering billions of dollars of losses from its investments in Barclays and Bank of America Corp during the financial crisis.

The selldown also comes after some analysts have turned cautious about the outlook for Chinese banks. On Tuesday, Moody's issued a warning of a possible ratings downgrade for Chinese banks due to their higher-than-expected exposure to local government debt.

"This would have been planned much earlier and it is a coincidence you got a report on Moody's," said CIMB's Song.

($1 = 7.780 Hong Kong Dollars) (Additional reporting by Elzio Barreto and Fiona Lau in HONG KONG and Kevin Lim in SINGAPORE)

[Dennis Ng]

Hi yhendra,

do not be surprised. Dr Tony Tan last month also warned of a possible Global Financial Crisis, so I'm not surprised that Dr Tony Tan see what I saw as well.

Problem for Temasek Holdings and Big investors is they cannot easily get out. Whereas for us small investors, easy to get in and out, so we have lots of opportunities to Ride the last Rally in the Stock Markets and get out before the Crash while for Big Investors such as Temasek and Warren Buffett, it's NOT as simple as that.

If Warren Buffett can buy Low and Sell High, I'm sure he would also do so. In the early days in the 1960s, that's what Warren Buffett did. Buy Low, Sell High.

[yhendra]

See another article regarding Temasek's action...

Temasek Sends Signal on China Bank Risk

http://online.wsj.com/article/SB1000142 ... 62362.html

By TOM ORLIK

How bad can things get for China's banks? Temasek Holdings isn't waiting around to find out.

The Singapore state investment fund, manager of a $133 billion portfolio and the biggest foreign investor in China's banking sector, has sold 49% of its shares in Bank of China and 8% of its China Construction Bank holdings for a total of US$3.6 billion. The timing of that move and the involvement of long-term strategic investor Temasek ring alarm bells about the outlook for the mainland's banking sector.

Last week, China's National Audit Office announced that the banking sector is exposed to some $1.3 trillion in local-government debt. In the days that followed, press reports said that local-government financing vehicles in Shanghai and Yunnan could default on their debts.

Those debts are an insignificant fraction of the total owed across the sector, but investors are concerned they represent the tip of a default iceberg. Concern about the overhang of bad debts, and the absence of a clear resolution plan from the government, mean bank valuations have taken a hit. Bank of China is down 13% since the beginning of June, and China Construction Bank is off 14%.

Temasek has yet to comment on its divestment. A longer-term desire to diversify its assets may have played a role. But it's also possible it is trying to get ahead of the curve, with rumors that Bank of America—the second-largest investor in China Construction Bank—plans to sell down a portion of its holdings.

Sales into a weak market, even if Temasek has come out US$1.2 billion up on its initial investment according to WSJ calculations, also suggest a certain nervousness. Markets seem to have drawn the conclusion that major investors are concerned about hidden risks in the banks. And the negative signal couldn't have come from a more significant stakeholder.

Temasek has been the largest single institutional investor in Bank of China— holding 12.5% of the stock before Wednesday's sale—and the third-largest in China Construction Bank. When Royal Bank of Scotland, Bank of America and UBS sold down their holdings in China's banks during the financial crisis, Temasek won political points with Chinese officials by actually increasing its exposure.

Bank of China fell 3.6% in Hong Kong on Wednesday amid heavy trading following the Temasek news, and China Construction Bank wasn't far behind.

The bigger question, however, is what lies ahead. Two factors loom large: the extent of bad debts in the system, and the banks' scope to grow through the problems. The signs aren't encouraging on either front.

A report by Moody's estimates that nonperforming loans in the banking system could rise to 8%-12% from the current 1.1%. At the same time, a two-year lending bonanza has seen China's loan-to-GDP ratio soar to 127% in 2010 from 101% in 2008. Bad debts will add to the banks' costs. Past excesses mean that even when the government eases its credit controls, the scope to grow through the problem by pushing more loans out the door is limited.

Whether nonperforming loans actually rise to the feared levels remains unclear, given how little is known about asset quality at China's banks. But Temasek's sales suggest not everyone is giving them the benefit of the doubt.

Write to Tom Orlik at Thomas.orlik@wsj.com

[Dennis Ng]

Hi yhendra,

the China's banks would be affected when the Beijing and Shanghai Property markets Crash, likely in year 2012. The impact won't be as bad as U.S. becos the percentage of financing is NOT as great, but nonetheless, it'll create bad debts in the banking system.

So the next Global Financial Crisis is likely worse than that in year 2008 as China, this round, would be "wounded" as well, though the wounds will NOT be deadly.

If Financial Crisis is a Tsunami, we are likely to experience the Worst Tsunami in the last 80 years, even worse than year 2008...time is running out...we must warn and "save" people from this coming Tsunami, please ask them to attend my seminars and get Financially Educated fast, before the Financial Tsunami hits us.

Cheers!

Dennis Ng

See another article regarding Temasek's action...

Temasek Sends Signal on China Bank Risk

http://online.wsj.com/article/SB1000142 ... 62362.html

By TOM ORLIK

How bad can things get for China's banks? Temasek Holdings isn't waiting around to find out.

The Singapore state investment fund, manager of a $133 billion portfolio and the biggest foreign investor in China's banking sector, has sold 49% of its shares in Bank of China and 8% of its China Construction Bank holdings for a total of US$3.6 billion. The timing of that move and the involvement of long-term strategic investor Temasek ring alarm bells about the outlook for the mainland's banking sector.

Last week, China's National Audit Office announced that the banking sector is exposed to some $1.3 trillion in local-government debt. In the days that followed, press reports said that local-government financing vehicles in Shanghai and Yunnan could default on their debts.

Those debts are an insignificant fraction of the total owed across the sector, but investors are concerned they represent the tip of a default iceberg. Concern about the overhang of bad debts, and the absence of a clear resolution plan from the government, mean bank valuations have taken a hit. Bank of China is down 13% since the beginning of June, and China Construction Bank is off 14%.

Temasek has yet to comment on its divestment. A longer-term desire to diversify its assets may have played a role. But it's also possible it is trying to get ahead of the curve, with rumors that Bank of America—the second-largest investor in China Construction Bank—plans to sell down a portion of its holdings.

Sales into a weak market, even if Temasek has come out US$1.2 billion up on its initial investment according to WSJ calculations, also suggest a certain nervousness. Markets seem to have drawn the conclusion that major investors are concerned about hidden risks in the banks. And the negative signal couldn't have come from a more significant stakeholder.

Temasek has been the largest single institutional investor in Bank of China— holding 12.5% of the stock before Wednesday's sale—and the third-largest in China Construction Bank. When Royal Bank of Scotland, Bank of America and UBS sold down their holdings in China's banks during the financial crisis, Temasek won political points with Chinese officials by actually increasing its exposure.

Bank of China fell 3.6% in Hong Kong on Wednesday amid heavy trading following the Temasek news, and China Construction Bank wasn't far behind.

The bigger question, however, is what lies ahead. Two factors loom large: the extent of bad debts in the system, and the banks' scope to grow through the problems. The signs aren't encouraging on either front.

A report by Moody's estimates that nonperforming loans in the banking system could rise to 8%-12% from the current 1.1%. At the same time, a two-year lending bonanza has seen China's loan-to-GDP ratio soar to 127% in 2010 from 101% in 2008. Bad debts will add to the banks' costs. Past excesses mean that even when the government eases its credit controls, the scope to grow through the problem by pushing more loans out the door is limited.

Whether nonperforming loans actually rise to the feared levels remains unclear, given how little is known about asset quality at China's banks. But Temasek's sales suggest not everyone is giving them the benefit of the doubt.

Write to Tom Orlik at Thomas.orlik@wsj.com

[Trade2win]

I think Temasek didn't want to get caught again, they were whacked black-eyed by the US banks previously .... so they knew something brewing from the Inside.

Public debt, private prosperity for Asia

It's not inconceivable that some Asian governments might go the way of Greece one day
by Simon Tay
04:45 AM Jul 07, 2011

The world seems awash in public debt. Problems in Greece with its second bailout are the most prominent but other problem economies in Europe await. Across the Atlantic, the US political system is in a deadlock about containing the runaway federal deficit while many cities and states are struggling.

In contrast, most Asian governments have banked away surpluses and now hold comfortable reserves. Things could not seem more different. Trends, however, may be changing and not always for the better.

The recent revelation by China's auditor-general about debts owed by local governments should be taken seriously. The China Daily described the US$1.65 trillion (S$2.02 trillion) of debt as posing a massive peril to the banking system, since 80 per cent is owed to China's banks.

Compared to the country's overall reserves, the problem may not seem so big. Beijing can issue government bonds, as some urge, or even afford a write-down. But neither will fix the systemic and ongoing problems.

Concerns have to be addressed about transparency, rationality and accountability in government spending. So, too, must allegations about corruption. Such concerns are not limited to China. Stimulus spending and big infrastructure budgets in other countries too can disguise the diversion of funds.

After decades of locking away high savings, Asians find that unlocking and using them wisely can be tricky. Spending is not, however, something to be avoided or simply accepted as inevitable. Indeed, encouraging Asians to spend more is necessary to make growth more sustainable.

Who else can make up for the diminished demand from the West? A lot now depends on the Asian consumer. Newly-rich Asians - mainly hordes of Chinese - buying up luxury goods are just the most obvious sign. An Asian middle class is emerging which, depending upon definitions, will constitute 500 million to a billion people.

Asia-wide consumption is projected to reach US$32 trillion in 20 years, comprising 43 per cent of worldwide consumption. The fastest growing markets for many firms and products will be in Asia. With this, balancing Asian pocket books will enter a new phase.

Household saving rates in Asia will be lower in future. Governments too will, on balance, save less. Surpluses will be cut as trade balances shift. Add stimulus spending and infrastructure investment and reserves will be depleted. Given these trends, over time, it is not inconceivable that some Asian governments might one day go the way of Greece.

Asia's current financial systems have only a limited capacity to allocate saving to those who need capital. Many Asian households still keep a large part of their wealth in real estate, gold and other non-financial assets. Many do not have bank accounts because they lack access to banks, or simply do not trust them.

Governments need to create deeper and more effective financial markets. This would help unlock savings and direct them towards firms that need capital to yield higher returns. Cross-border efforts must also be considered, especially among the smaller economies.

Asians also need to seriously consider creating bonds to provide for investment in infrastructure, education and other needs. This would help governments raise and direct funds to specific needs. Public bonds could also potentially provide some discipline to government spending.

Otherwise, Asian public reserves will continue to be locked in US Treasury bills, perpetuating pre-crisis patterns, and holding them captive to the value of the US dollar. Without other and more productive outlets, private savings in Asia are flooding into assets such as housing, creating artificial bubbles.

Yet, even if Asians can avoid such bubbles and bad loans, develop more self-contained economy and self-generating growth, they must guard against hubris about Western folly. The interdependence with developed countries in both economics and politics continues. Asia's growth will require capital, know-how and skills in such quantity and increasingly higher quality, that exchanges and engagements with the developed economies of the US and Europe will be essential.



Simon Tay is chairman of the Singapore Institute of International Affairs. This comment draws on work on a global think-tank panel on the future of prosperity convened by Aviva.

[TieGe]

Trade2win, and Dennis
Now do u think Temasek will get it right this time?

Meaning bank of china share price is no good to hold for now?

Tie Ge

[Dennis Ng]

Trade2win, and Dennis
Now do u think Temasek will get it right this time?

Meaning bank of china share price is no good to hold for now?

Tie Ge

Hi Tie Ge,
they may be right. As mentioned, it is NOT easy for them to offload their shares, so they can't be like retail investors, who can choose any day or time to sell their shares.