Goldman Sachs Sells $2.5 Billion of ICBC Shares to Temasek Holdings

Temasek Holdings Pte is buying Goldman Sachs Group Inc. (GS)’s shares in Industrial & Commercial Bank of China Ltd. as the Singapore state-owned investment company adds to its holdings of China’s biggest lenders.

As a result, Temasek will own 3.55 billion shares at HK$5.05 each, which is at 3.1 percent discount to Friday's closing price. This deal will provide Temasek with 1.3 percent stake in ICBC, which is considered to be the world's largest bank by market value. Photo: Stéphane J./Flickr

The Singapore state-owned investment group, Temasek Holdings, intends to buy $2.3 billion worth of shares in the Industrial and Commercial Bank of China (ICBC) from Goldman Sachs, a move that might be interpreted as part of its strategy to increase investment in emerging economies.

Due to this deal, Temasek has advanced further into China’s banking sector, which now boasts of four of the world’s top ten banks by market value, reports The International Business Times.

Temasek Holdings already has stakes in such banks as China Construction Bank, Agricultural Bank of China and Bank of China.

In terms of its portfolio strategy, Temasek has recently tried to remain invested close to home. This strategy, which was laid out after the global financial crisis of 2008, has helped Temasek grow and rerecover the losses it took on investments in banks in Europe and the US.

Besides the deal with the Singapore state investor, Goldman Sachs also plans to sell shares of ICBC worth $200 million to other institutional investors, claims Reuters.

Goldman Sachs has been following this plan in order to prune its stake in ICBC, which is estimated to have a market value of $240 billion. Goldman Sachs, which acquired its ICBC stake in 2006, had reported a $517 million pretax loss in 2011.

“Temasek has laid out its strategy before on where it thinks growth is. Within Asia, China anchors the growth, so Temasek is putting money where its mouth is,” said Song Seng Wun, an economist at CIMB.

Last month ICBC announced that its net profit in 2011 went up by 26 percent. Nonetheless, there has also been an increase in bad debts, which has caused a huge concern among investors.

Also China’s decreasing growth rate, subsequent to a decline in domestic property investment and export demands, is expected to further raise bad loans and erode the profitability of the bank.

With property developers and small businesses facing a difficult time, an increase in the non-performing loans is anticipated by investors like Goldman Sachs, who for the time being are trimming their stakes in China’s banking sector.

Last month Citigroup sold its 2.71 percent equity stake in the Shanghai Pudong Development Bank for $668 million through block trade to institutional investors.

By the way, last week saw the news that Goldman Sachs would pay $22 million to resolve U.S. regulators’ claims that the firm failed “to implement policies to keep its stock analysts from tipping select clients about upcoming research changes”.

According to San Francisco Chronicle, Goldman Sachs held weekly huddles from 2006 to 2011 where analysts discussed short-term trading ideas and traders shared their views of the markets. The meetings created “a serious risk” that employees and clients could trade on the non-public information, the SEC said.

“Higher-risk trading and business strategies require higher-order controls,” SEC Enforcement Director Robert Khuzami said in the agency’s statement.

“Despite being on notice from the SEC about the importance of such controls, Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients.”

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