Goldman Sachs sells ICBC shares

Goldman Sachs held out a month longer than Allianz and American Express, but last night the US investment bank finally sold close to 20% of its shares in Industrial and Commercial Bank of China (ICBC), raising HK$14.79 billion ($1.9 billion).

Its decision not to sell these shares immediately after the lockup expired on April 28, as did Allianz and Amex, meant Goldman was able to fetch 26% more for its shares than its two investment partners, thanks to strong gains in ICBC's share price since then. The stock has risen 27% since the sell-down by Allianz and Amex and the 4.7% jump yesterday took it to HK$5.11 -- its highest close since the collapse of Lehman Brothers in mid-September.

Part of this bounce can be explained by a general rebound in global equities markets -- the Hang Seng Index yesterday closed at an eight-month high of 18,888 points -- but ICBC has also likely been helped by the fact that the overhang from a potential Goldman sale was at least partially removed when the bank didn't sell straight away once the lockup expired. Representatives of Goldman said several times in April that the bank was in no rush to sell its ICBC shares and had no need to raise cash. The bank's position was reinforced in early May when the US Federal Reserve said that its stress test had revealed that Goldman did not require further capital to withstand an even more adverse market scenario.

In the end, Goldman still chose to offload the part of the ICBC shares that it has been entitled to sell since the end of April. The shares are held on a mark-to-market basis and thus the profit will be nowhere near the difference between today's share price and the actual price it paid three years ago. However, the sharp gains in the share price since the end of the first quarter, suggest that the sale will have a positive impact on Goldman's earnings in the second quarter. 

While some of the shares are held on behalf of clients, the cash could come in handy as the bank wants to repay the $10 billion that it received under the US government's Troubled Assest Relief Programme (Tarp) in October last year. As part of the deal, the government received perpetual preferred shares that pay a 5% annual dividend until November 2013 and 9% thereafter - interest costs that Goldman would rather be without. Banks that have received Tarp funds also face restrictions on staff compensation.

The shares were offered at a price between HK$4.80 and HK$4.90, which translated into a discount of 4%-6% versus yesterday's close, and ended up being priced at HK$4.88 for a 4.5% discount. According to a source, the deal was heavily oversubscribed and could potentially have priced a bit tighter, but in light of yesterday's strong gains, Goldman decided to leave something on the table for investors. The final price was equal to Friday's close of HK$4.88.

By comparison, Allianz and Amex sold their shares -- a combined 1.2% of ICBC's total share capital -- at a fixed price of HK$3.86, which represented a 4% discount to the market price at the time. That placement wasn't offered to the broader investment community, but was privately negotiated with a targeted group of investors and allocated to just under 20 accounts. The two companies each became allowed to sell 50% of their holdings in ICBC on April 28 and only about eight hours or so into that day, they announced that Goldman had helped them offload all of those shares through a placement totalling $1.92 billion. They will be allowed to sell their remaining ICBC shares from October 20 this year.  

Under the terms of its original investment, Goldman too was to be able to sell half its ICBC shares from April 28, but at the end of March, the US investment bank said it had renegotiated the lockup and agreed to hold on to 80% of its shares in the bank for another year -- leaving only 20% that could be sold from the end of April this year.