UBS Sells Stake in Bank of China

HONG KONG -- UBS AG said in a statement Wednesday it sold its entire 1.33% stake in Bank of China Ltd. in a placement to institutional investors, after the lockup period for its holding expired Tuesday.

The share sale is the first exit by a foreign strategic investor in a Chinese lender, following speculation that foreign investors need to cash out to replenish their depleted balance sheets.

The statement didn't specify the terms of the placement. People familiar with the situation said earlier Wednesday that UBS raised US$808 million by selling 3.38 billion shares to 15 participants at a 12% discount to Bank of China's closing price Wednesday of HK$2.12 (27 U.S. cents).

The bank acquired the stake for US$491.57 million in September 2005, according to the prospectus for Bank of China's US$11 billion initial public offering, which took place the following year.

Analysts said the proceeds are welcome, given the bank's efforts to bolster capital. The stake sale comes shortly after UBS accepted Swiss government funds, which will involve up to $60 billion in illiquid assets being transferred to a fund managed by Switzerland's central bank.

A spokesman for Zurich-based UBS declined to detail the sale's effect on the bank's capital, deferring questions on the matter until it reports its fourth-quarter earnings Feb. 10.

"UBS remains committed to its business relationship with Bank of China, and its business in China as a whole, where UBS will continue to develop its already strong client franchise," the company said, without elaborating.

The lockup period for another foreign investor in the Chinese lender, Royal Bank of Scotland Group PLC, also expired over the past two days. It holds an 8.25% stake in Bank of China and was recently bailed out by the U.K. government, which now owns 58% of the U.K. bank.

Bank of China spokesman Wang Zhaowen tried to allay concerns Tuesday that RBS would sell some or all of its shares. He said the U.K. lender pledged to notify Bank of China if it decided to sell its shares in the Chinese bank one month beforehand, and it hasn't received such a notification.

The other foreign investors in Bank of China are Temasek Holdings (Private) Ltd., whose 4.13% holding also expired over the past two days, Asian Development Bank and Bank of Tokyo-Mitsubishi UFJ Ltd., which each own a 0.2% stake.

There has been widespread speculation that Western banks with investments in China will sell down their holdings to raise capital in a tough time for the banking industry.

Earlier this month, people familiar with the situation said Bank of America Corp. had sought to sell US$3.1 billion worth of shares it owned in China Construction Bank Corp., but the deal was canceled later.

The people didn't provide a reason for the deal's cancellation, but the South China Morning Post reported that the sale was pulled after an objection from Beijing, which thought it wasn't the right time for a sale.

(WSJ)