RBS Selling Bank of China Stake at Profit

HONG KONG -- Royal Bank of Scotland Group PLC is raising up to US$2.37 billion by selling its entire holding in Bank of China Ltd., profitably unwinding a strategic investment the British lender made more than three years ago.

The bank is selling its 4.3% stake to institutional investors at between HK$1.68 and HK$1.71, (between 21.7 and 22 U.S. cents) each, a 7.6% to 9.1% discount to Bank of China's Hong Kong closing price of HK$1.85 a share Tuesday, according to people familiar with the situation. Morgan Stanley and RBS are jointly arranging the sale and were placing the shares before the market reopened Wednesday.

Foreign strategic investors have been shedding their stakes in Chinese banks as lock-up periods expire on shares purchased before China listed its largest state banks. Western banks are selling their holdings to raise capital as concerns also mount that China's banks will be saddled with a new wave of bad loans as the country's economy slows.

RBS bought the 10.8 billion Hong Kong-listed H shares in 2005 for HK$1.14 each, according to analysts, and could thus make a profit of as much as HK$6.16 billion (US$794.3 million) from the sale, despite the decline in the Chinese bank's shares in the past year. Bank of China shares fell 44% in 2008 and are down 13% this year.

Wang Zhaowen, a spokesman at Bank of China, China's second-biggest bank by assets, said the two banks would be issuing a joint statement but didn't elaborate.

Any proceeds from a sale would help the U.K. bank, which has pledged to redeem £5 billion (US$7.4 billion) in preference shares issued to the U.K. government at a coupon of 12% in the next 18 months.

Associated Press

A branch of the Royal Bank of Scotland is seen in London.

RBS bought the shares in Bank of China ahead of the latter's Hong Kong initial public offering three years ago. It led an investor consortium, including a foundation owned by Li Ka-shing, one of Asia's richest men, Merrill Lynch & Co., hedge funds D.E. Shaw & Co. and Och-Ziff Capital Management LLC, and private-equity firm Oaktree Capital Management LLC, in paying a total of US$3.1 billion for a 10% stake in the Chinese lender.

The lockup period for the consortium's shares expired Dec. 31.

The Li Ka Shing Foundation raised US$511 million last week from its sale of two billion of its five billion Bank of China shares, just days after UBS AG sold its entire 1.33% stake in Bank of China for US$808 million.UBS sold its Bank of China stake on New Year's Eve. Bank of America Corp. trimmed its China Construction Bank Corp. holding last week, raising $2.8 billion.

(WSJ)