Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

It had started to look like Jack Ma's magic touch was beginning to elude him when it came to Yunfeng Financial Group Ltd., the Hong Kong-listed brokerage backed by the billionaire. Not any more.

A group led by Yunfeng said Thursday it would buy Hong Kong-based MassMutual Asia Ltd. from Massachusetts Mutual Life Insurance Co. for HK$13 billion ($1.7 billion). Yunfeng will end up owning a stake of around 60 percent in MassMutual Asia, with the rest held by other consortium members including Singapore sovereign wealth fund GIC Pte and Ant Financial, the payments affiliate of Alibaba Group Holding Ltd.

There are several reasons why Yunfeng, which earlier this year created a robo-adviser application to manage the wealth of regular Chinese and Hong Kong investors, has done well here.

Insurance Premium
News that Jack Ma-backed Yunfeng Financial is part of a consortium buying MassMutual Asia sent the Hong Kong financial services company's stock up as much as 31 percent Friday
Source: Bloomberg

For one, Yunfeng is largely paying in stock (and its shares rocketed as much as 31 percent Friday); it ends up with Massachusetts Mutual Life in the U.S. as a shareholder;  and it acquires a coveted Hong Kong insurance license.

With MassMutual Asia's suite of products, the deal also allows Yunfeng to better target all those mainland visitors to Hong Kong seeking insurance offerings. Yunfeng currently ranks just 15th in the city in terms of new policies sold last year, trailing market leader AIA Group Ltd. by a wide margin, according to Bloomberg Intelligence analyst Steven Lam.

Small Fry
Yunfeng Financial's revenue for the six months to Dec. 31, 2016 was just $11.97 million
Source: Bloomberg

Despite all sorts of curbs from Beijing on capital outflows, including restrictions on the use of UnionPay cards to buy policies, sales to Chinese residents are booming. AIA's business in Hong Kong soared 54 percent to $828 million in the first half, an impossible increase in a city of 7 million without mainland buying.

Even in valuation terms, Yunfeng, which used to be known as Reorient Group Ltd. before Ma's capital injection, is getting a good deal, paying about 1.9 times last year's book value, according to Lam.

Two insurance firms in Hong Kong over the past 12 months have gone to mainland buyers for distinctly frothy valuations. There was China UCF Group Co., the conglomerate led by businessman Zhang Zhenxin, which acquired Hong Kong Life Insurance Ltd. at 9 times, and the sale of Dah Sing Financial Holdings Ltd.'s insurance business to China's Thai Hot Group for 5 times.

On those numbers alone, Yunfeng has a mass of reasons to like this transaction.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Of the HK$7.86 billion Yunfeng is contributing for its stake, about HK$5.2 billion will be paid for via stock. As a result, MassMutual in the U.S. will end up as shareholder in Yunfeng, while Yunfeng gets access to attractive products that appeal to people across the border in China.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net