Hong Kong's Fourth-Richest Billionaire Buys Ping An Stake For $2.5 Billion
Ping An Gets $2.5 Billion Selling Shares to Boost Solvency
Qilai Shen/Bloomberg
Ping An Insurance (Group) Co. raised HK$19.4 billion ($2.5 billion) selling shares to a Hong Kong billionaire to help China’s second-largest insurance company boost capital. Shares fell the most in almost two years.
Ping An Insurance (Group) Co. raised HK$19.4 billion ($2.5 billion) selling shares to a Hong Kong billionaire to help China’s second-largest insurance company boost capital. Shares fell the most in almost two years. Photographer: Qilai Shen/Bloomberg
Ping An Insurance (Group) Co. raised HK$19.4 billion ($2.5 billion) selling shares to a Hong Kong billionaire to help China’s second-largest insurance company boost capital. Shares fell the most in almost two years.
Chow Tai Fook Nominee Ltd., controlled by the family of the Hong Kong tycoon Cheng Yu-tung, bought 272 million shares at HK$71.50 each, according to a Hong Kong exchange filing late yesterday. The new stock represents 3.44 percent of expanded share capital, and Ping An will use the money to increase its solvency ratio and “broaden the capital scale,” it said.
Chairman Peter Ma is raising funds after saying in September Ping An will pay 29.1 billion yuan ($4.4 billion) for control of Shenzhen Development Bank Co. (000001) to enhance banking operations. The share sale will lift Shenzhen-based Ping An’s solvency margin, which measures its ability to solve claims, to 248 percent from 218 percent as of June 30, according to JPMorgan Chase & Co., preparing the insurer for further expansion in the world’s second-biggest economy.
“Our conservative estimate is this covers any capital shortage through 2012,” Guosen Securities Co. analyst Tong Chengdun said in an e-mailed note today.
Ping An shares fell as much as 7.6 percent and were down 6.7 percent at HK$76.25 at the midday break on the Hong Kong stock exchange, set for the biggest drop since April 28, 2009. The stock was suspended yesterday pending the announcement.
‘Less Justified’
Deutsche Bank AG questioned the strategic value in introducing Chow Tai Fook and said Ping An’s choice of a private placement is “less justified” than a full rights offer from the viewpoint of existing shareholders.
“We are not of the view that Ping An group needs further capital in the next two years to finance its growth or capital commitment for acquiring 51 percent of Shenzhen Development Bank,” analyst Bob Leung said in a report dated yesterday. “Stock weakness is expected in the short term.”
The solvency ratio of Ping An’s property and casualty unit dropped 7.4 percentage points in the first half of 2010 to 136.2 percent, as premiums surged by 61 percent, and the gauge for its life insurance arm fell 20 percentage points to 206.3 percent, according to company filings. Insurers are required to hold more capital as they collect more premiums because that signals higher repayment risks over potential claims.
‘Remains Odd’
“It remains odd to us that other institutional investors would not have aggressively pursued this deal given the large discount and short lock-up period,” Nan Sheng, a Shanghai-based analyst at UOB Kay Hian Investment Co., wrote today. “Given management’s reluctance to verbally commit to refrain from further fund-raising in the coming years, it is possible that there may be more equity-capital raising in the future.”
Chow Tai Fook’s short position of 196 million Ping An H- shares also “fueled speculation that the placement may be used to cover CTF’s short position in Ping An’s stock,” Sheng wrote in an e-mailed report after a conference call with the insurer’s management earlier today.
Ping An will pay 2.69 billion yuan in cash and inject its banking unit into the Shenzhen Development Bank in return for a 22.4 percent stake, raising its holdings to 52.39 percent. It raised its stake in the bank to 29.99 percent in June by buying a stake from Newbridge Capital LLC and new shares.
Underwriting Profitability
Ping An Insurance achieved “much better” underwriting profitability for non-life business last year than in 2009 as expenses dropped, Shi Liangxun, vice president of Ping An Property & Casualty Insurance Co., said on March 1.
It will be “very difficult” to lower the unit’s combined ratio, which measures expenses and claims as a percentage of premiums earned, further this year, Shi said. The unit will find it hard to exceed an estimated 20 percent average premium growth for China’s non-life insurance industry this year, Shi said.
The insurer’s Shanghai shares dropped 4 percent on Jan. 6 after a Citic Securities Co. report saying Ping An may need to raise up to 40 billion yuan.
Chinese insurers may be subject to dividend payout restrictions when their solvency ratios drop below 150 percent, according to government rules. They may also be ordered to submit plans to prevent the gauge from falling below 100 percent, when the regulator can freeze approvals for new branches, curb management pay and restrict the scope of investment.
Chinese banks raised about $72 billion from sales of stock and convertible bonds last year, after a record expansion of credit brought down their capital adequacy levels and as the banking regulator considers higher requirements to prevent risks.
Cheng controls property company New World Development Co. and was ranked by Forbes Magazine as Hong Kong’s fourth-richest person. Hong Kong’s richest man, Li Ka-shing, last year invested in a rights offer by London-based Prudential Plc.
To contact the reporters on this story: Shelley Smith in Hong Kong at ssmith118@bloomberg.net; Bei Hu in Hong Kong at bhu5@bloomberg.net
To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net
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