The Commonwealth Bank will raise expectations among investors for another buyback later this year – on top of the existing $2 billion one announced last month – after revealing Tuesday that it had sold part of its stake in a Chinese bank for $A1.8 billion.
The CBA says it has entered into a binding sale agreement to sell a shareholding of 10% in Bank of Hangzhou Co. Ltd. (HZB) to the Hangzhou Municipal Government.
The purchasers are two entities owned by the government – The Hangzhou Urban Construction & Investment Group Co., Ltd and Hangzhou Communications Investment Group Co. Ltd.
The Bank said total gross proceeds expected to be received by CBA following completion of the Transaction are approximately $1.8 billion and the CBA says the sale will result in a post gain of around $340 million.
The sale will boost (on a proforma basis), the bank’s top capital (CET1) by around 35 basis points. At December 31 the bank had a CET1 (Common Equity Tier 1) capital ratio of 11.8%. The sale will take that back to around 12.15% before any contribution from the bank’s operations in the June half.
CBA said on Tuesday it has agreed with HZB to retain its remaining shareholding in HZB of approximately 5.57% until at least February 28, 2025 (“subject to certain exceptions, including if the Transaction is terminated prior to completion”).
CBA CEO, Matt Comyn, said in the Tuesday statement that: “the partial sale of our shareholding is consistent with our strategy to focus on our core banking business in Australia and New Zealand.”
“Our ongoing shareholding in HZB following completion of the Transaction will enable us to continue to support its development as one of China’s leading city commercial banks, and complement our relationships in the region.”
“The residual 5.57% shareholding will now be treated as a strategic equity investment, with gains and losses recognised within the Statement of Comprehensive Income. As a result, the Group will no longer recognise its share of HZB profits within other banking income, which over the past three financial years has averaged approximately $200 million revenue per annum,” the CBA said.
The current buyback is due to start on March 21 and end next February. The extra capital from this sale and from operations this half could easily see that $2 billion figure boosted later in the year if conditions allow.
