Ping An to Merge Banking Unit With Shenzhen Development
Ping An Insurance (Group) Co., China’s second-largest insurer, will pay 29.1 billion yuan ($4.3 billion) for a stake that will give it control of Shenzhen Development Bank Co. and bolster its banking operations.
Ping An will pay 2.69 billion yuan in cash and inject its banking unit into the Shenzhen-based lender in exchange for a 22.4 percent stake, raising its holding to 52.39 percent, according to a statement to the Shanghai Stock Exchange yesterday.
The acquisition gives Ping An control of a publicly traded lender with 855 billion yuan of assets and a network of more than 300 outlets, advancing Chairman Peter Ma’s plan of building a financial conglomerate. Ping An, which boosted its holding in the Shenzhen lender to 29.99 percent in June by buying a stake from Newbridge Capital LLC and new shares, needs to merge the business with its own banking unit to comply with regulations.
“Gaining control of Shenzhen Development is certainly what Chairman Peter Ma wanted given his ambitions to boost banking to one third of the company’s revenue,” said Sun Ting, a Shanghai- based analyst at Shenyin & Wanguo Securities Co. “Cross-selling insurance through a bank owned by Ping An will be much less costly and it can sell more complicated products.”
Ping An had to merge Ping An Bank with Shenzhen Development to avoid falling foul of regulations issued in March that bar insurers from exerting power over two banks.
Shares Rose
Ping An rose 2.7 percent to HK$66.10 at the 4 p.m. local time close in Hong Kong on its first trading day after a two- month suspension, after rising as much as 7.5 percent. Shenzhen Development, the smallest of China’s 11 publicly traded national banks, climbed 3.9 percent to 18.19 yuan in Shenzhen, after surging as much as 8.5 percent earlier.
Ping An, based in the southern Chinese city of Shenzhen, serves 51 million retail customers and 2 million corporate clients nationwide, according to its website. Shenzhen Development’s network of more than 300 outlets will let the insurer better serve its customers, whose average age is below 40 and whose assets will grow in the coming two decades, Ping An President Louis Cheung said a year ago when the company agreed to buy the stake from Newbridge.
The transaction is the best option for both companies’ future development, Cheung said on a conference call today. The deal may take a year to complete.
Banking Profit
Ping An’s profit from banking surged more than 90 percent from a year earlier to 1.1 billion yuan in the first half, generating 11 percent of total net income. Shenzhen Development, China’s first foreign-controlled lender, contributed 204 million yuan to Ping An’s 29 percent profit gain in the first half.
About 14 percent of Ping An’s non-life insurance premiums came from cross-selling channels within the group in the six months ended June 30, while non-bank clients contributed 22 percent of corporate deposits.
The insurer will buy 1.64 billion new shares to be issued by Shenzhen Development at 17.75 yuan each, according to yesterday’s statement. Ping An will use its 90.75 percent stake in unit Ping An Bank and 2.69 billion yuan of cash to pay for the purchase.
The transaction is an “inexpensive way to gain majority control of Shenzhen Development Bank,” UBS AG analyst Kenneth Lo said in an e-mailed note today.
Ping An in May completed buying 520.4 million shares in Shenzhen Development from Newbridge for about 11.45 billion yuan, making it the lender’s largest shareholder. The insurer also bought 379.58 million new shares in the bank in June in a private placement valued at 6.93 billion yuan, bringing its total holding to 29.99 percent.
Share Buyout
The insurer said it’s seeking a waiver from the requirement to make a buyout offer for all of Shenzhen Development’s shares, and it will hold the stake in the bank for at least three years.
Shenzhen Development in June appointed Richard Jackson, former head of Ping An Bank, as its president. Any insurance group, “in principle,” shouldn’t control more than one financial company that operates the same type of core business, according to a China Insurance Regulatory Commission regulation issued in March.
The purchase is subject to shareholder and regulatory approvals, yesterday’s statement said.
--Zhang Dingmin, Luo Jun. Editors: Josh Fellman, Andreea Papuc
To contact Bloomberg News staff of this story: Zhang Dingmin in Beijing at +86-10-6535-2334 or Dzhang14@bloomberg.net
Peter Ma, chairman and CEO Ping An Insurance
Qilai Shen/Bloomberg
Peter Ma, chairman and chief executive officer of Ping An Insurance (Group) Co.
Peter Ma, chairman and chief executive officer of Ping An Insurance (Group) Co. Photographer: Qilai Shen/Bloomberg
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