HSBC Holdings Plc (HSBA)’s $7.4 billion sale of its stake in Ping An Insurance (Group) Co. (2318) to Thai billionaire Dhanin Chearavanont was cleared by regulators, helping Europe’s largest bank by market value revive earnings.
Dhanin’s Charoen Pokphand Group Co. and HSBC said payment was made in cash after the China Insurance Regulatory Commission approved the sale of 976.1 million Hong Kong-traded shares in the nation’s second-largest insurer, ending six weeks of speculation over the deal’s fate. HSBC said in a statement that it expects to complete the transfer on Feb. 6.
The transaction will generate a $2.6 billion profit for HSBC, bolstering Chief Executive Officer Stuart Gulliver’s efforts to improve profitability hurt by U.S. probes of money laundering and compensation claims from U.K. clients. CP Group said on Jan. 11 it had the resources to complete the purchase, damping concern the deal would collapse after Caixin Online reported that China Development Bank Corp. withdrew financing.
“Given all the twists and turns, this outcome is quite a surprise and the best for all,” said Li Wenbing, a Beijing- based analyst at Bocom International Holdings. “With a relatively passive investor like CP, Ping An’s management can maintain their control on the firm’s operation and leverage some of CP’s expertise in tapping the rural financial sector.”
Ping An shares fell 2.6 percent to HK$69 at 11:10 a.m. in Hong Kong, trimming their gain since Dec. 4, the day before the sale was announced, to 20 percent. The price is 17 percent more than the HK$59-a-share that CP Group agreed to pay.
HSBC rose 0.3 percent to HK$88.25. The shares have gained 8.6 percent this year, valuing the company at HK$1.63 trillion ($210 billion).
The lender, based in London, agreed on Dec. 5 to sell its 15.6 percent holding in Ping An to four subsidiaries of CP Group in two phases for about $9.4 billion. The first stage, comprising shares valued at about HK$15 billion, was completed Dec. 7. The rest required approval from the regulatory commission.
The acquisition of four-fifths of the shares would be funded with cash as well as a financing agreement from the Hong Kong unit of China Development Bank, HSBC said in December.
CP Group didn’t use that credit facility from China Development Bank, a policy lender based in Beijing, to finance any part of the purchase, said a person with knowledge of the transaction. The person, who asked not to be identified because the matter is private, didn’t say how CP Group raised funds for the deal. The statements didn’t give any details on funding.
Gulliver, who became CEO in January 2011, is seeking to cut costs by $2.5 billion to $3.5 billion and revive profit by selling assets to focus on emerging economies in which the bank has a greater market share. Savings will probably exceed that range and be achieved by the end of 2013, HSBC has said.
The lender on Dec. 11 agreed to pay $1.92 billion to settle U.S. probes of money laundering in the largest such accord, topping the $619 million in penalties paid in June by the Netherlands’ ING Groep NV. It made an $800 million provision in the third quarter to cover a potential settlement, adding to $700 million it had already earmarked.
HSBC is among British banks that may have to pay a total of as much as 5 billion pounds to compensate small businesses improperly sold interest-rate derivatives following a probe by the U.K. financial regulator.
To bolster earnings, HSBC has relied on faster-growing economies, with the Asia-Pacific region accounting for 64 percent of first-half pretax income, up from 47 percent five years ago, according to data compiled by Bloomberg.
“They may start to increase their payout ratio or loan growth,’ said Cormac Leech, an analyst at Liberum Capital Ltd. in London, who recommends buying the stock. ‘‘But it’s possible they could run with a high Tier 1 capital ratio,” he said, referring to a measure of financial strength.
Dhanin, 73, planned to make a foray into financial services after spending more than four decades building a family-seed business into Thailand’s biggest agricultural company and conglomerate. His net worth is an estimated $6.6 billion as of Feb. 1, according to the Bloomberg Billionaires Index. Almost 60 percent of the fortune is from overseas private companies.
The group’s historical ties to China include becoming the first foreign investor after Deng Xiaoping opened the economy in 1979, and continued management of local agricultural projects. CP said it could help develop rural areas in China through its investment in Ping An.
Following the sale, HSBC’s Chinese holdings include 19 percent of the Shanghai-based Bank of Communications Co., the nation’s fifth-largest, and 8 percent of closely held Bank of Shanghai Co. Its Hong Kong unit, Hang Seng Bank Ltd. (11), holds a 13 percent stake in China’s Industrial Bank Co.
“This is good news as it removes the uncertainty,” said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi International Ltd. who recommends investors buy the shares. “We still prefer Ping An among Chinese insurers and the stock has some upside.”
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