By Michael Flaherty and Saeed Azhar
HONG KONG/SINGAPORE (Reuters) - Singapore state investor Temasek TEM.UL bought $2.3 billion worth of ICBC's (1398.HK) Hong Kong-listed shares from seller Goldman Sachs (GS.N), piling into three of China's top four banks and raising its bet on the world's second-biggest economy.
Temasek was burned by its financial industry exposure in 2008, hit by stakes in large European and U.S. banks that plunged in the crisis. But it has kept nearly 40 percent of its investment portfolio in banks it feels are strong and are capturing emerging market growth.
The deal for ICBC takes Temasek deeper into China's banking industry, which has grown from insolvency six years ago to a sector that holds four of the world's top ten banks by market value.
Ding Wei, Temasek's China head, told Reuters it bought into ICBC because the price was "reasonable" and the state investor was positive on the bank and China's long term development.
Temasek already owns stakes in China Construction Bank (0939.HK) (601939.SS) and Bank of China (3988.HK) (601988.SS). China assets accounted for 20 percent of its portfolio as of March 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.
The latest purchase was of 3.55 billion H-shares, or about 1 percent, of Industrial and Commercial Bank of China (601398.SS), the world's largest bank by market value.
Temasek now has a 1.3 percent stake in ICBC, a Temasek spokesman said. This includes ICBC shares that the state investor owns directly as well as various other stakes held by Temasek-linked companies.
China's banking industry has come under fire lately, as customers and politicians have cried out that the sector's massive profits are coming at the expense of citizens. Low deposit rates, coupled with steady customer fees are at the heart of the protests.
Goldman's block trade is in line with its plan to reduce its stake in ICBC, which it bought into prior to the Chinese bank's 2006 IPO. After the sale, its fourth, Goldman has roughly $3 billion of ICBC shares remaining.
Goldman sold the Hong Kong-traded shares of ICBC at HK$5.05 each, or a 3.1 percent discount to Friday's closing price. The other, roughly $200 million worth of shares were sold to other institutional investors, according to a source.
Hong Kong shares of ICBC, which has a market value of $240 billion, fell as much as 1.7 percent early on Monday but pruned the losses to be down 0.8 percent in the afternoon, in line with the broader market (.HSI).
Its shares are up about 12 percent so far this year, in line with a similar rise on the benchmark Hang Seng Index (.HSI).
Besides Goldman, American Express (AXP.N) is the only major foreign financial institution that holds shares in ICBC. Amex holds about 638 million shares in ICBC, or less than 1 percent of the bank's Hong Kong-listed shares.
"The sale does not affect ICBC at all, and the overhang will be removed when Goldman disposes off the remaining (ICBC shares) hopefully in one go," said Sanjay Jain, head of Asian financials research at Credit Suisse.
Temasek's financial services portfolio includes stakes in Singapore's DBS Group (DBSM.SI), Indian lender ICICI Bank (ICBK.NS) and Standard Chartered (STAN.L) (2888.HK).
Bank of America (BAC.N), RBS (RBS.L) and UBS (UBSN.VX) are among the foreign banks that have sold large stakes in Chinese banks over the past few years. Such sales have been an attractive way to raise capital or reduce earnings volatility.
Goldman first bought 4.9 percent of ICBC for about $2.6 billion before the 2006 IPO, which was then the world's biggest public offering.
The latest stake purchase comes after Temasek, which manages about $150 billion in assets, raised about $800 million since the start of the year in three significant selldowns in its portfolio companies. This included a 1.4 percent stake sale in ICICI Bank.
Temasek is also selling its 67.4 percent stake in Indonesia's Bank Danamon (BDMN.JK) to DBS in exchange for DBS shares, in a deal that is awaiting regulatory approval.
(Additional reporting by Elzio Barreto, Kelvin Soh and Xie Heng; Editing by Muralikumar Anantharaman)