Carlyle Selling Remaining China Pacific Stake, Terms Show

Carlyle Group LP raised about $796 million from the sale of its remaining shares in China Pacific Insurance (Group) Co., cementing profits from its largest investment in China as the firm raises money for its biggest Asia buyout fund.

The Washington-based private-equity firm sold almost 204 million shares, a 2.2 percent stake, in the Shanghai-headquartered insurer at HK$30.30, the top end of the offering range of HK$30 to HK$30.30 apiece, according to a document obtained by Bloomberg News. China Pacific fell by the most in more than a month after rising 23 percent since Dec. 3 amid a surge in Chinese stocks.

The share sale comes as Carlyle is seeking to raise about $3.5 billion for its fourth buyout fund in Asia, its biggest targeting the region and 37 percent larger than the firm’s last regional fund, completed in 2010, two people familiar with the matter said last year. Carlyle’s exit removes a long-term overhang to China Pacific’s share price and is positive for the stock, according to Jefferies Hong Kong Ltd., which raised the insurer’s target price by 21 percent in a report yesterday.

“Investors are expecting insurers to unveil new marketing strategies as the new year starts, which is positive, and the rally in the domestic stock market is good for insurers’ investments as well,” said Olive Xia, a Shanghai-based analyst at Core Pacific Yamaichi International Ltd. “But China Pacific’s recent upward momentum has been a bit too strong and needs some adjustment.”

Asia Funds

The Chinese insurer dropped 2.1 percent to HK$30.35 as of 10:56 a.m. local time. The stock has surged 23 percent in Hong Kong trading since Dec. 3, when the benchmark Shanghai Composite Index hit an almost four-year low, outpacing the equity gauge’s 16 percent rally since then amid signs the nation’s economy is bottoming out.

Carlyle had raised three Asia funds totaling $5.1 billion between 1999 and 2010, and invested in China Pacific shares from its second fund worth $1.8 billion. Carlyle, which started in China in 1998, bought about 20 percent in China Pacific between 2005 and 2007, its biggest purchase in the nation.

The private-equity firm sold 215.8 million China Pacific shares at HK$31.15 apiece in Dec. 2010 for HK$6.7 billion ($864 million) after a lock-up period ended, according to a term sheet obtained by Bloomberg News at the time. It sold 415.2 million of the Chinese insurer’s Hong Kong-listed shares at HK$33.45 each in January 2011, raising $1.8 billion. In July last year, the firm planned to sell 250 million shares at HK$30.90, raising HK$7.73 billion, according to three people with knowledge of the transactions at the time.

Seven Years

“We have been very privileged and proud to be a major shareholder in China Pacific Insurance Group for more than seven years,” Yang Xiang Dong, managing director and co-head of Carlyle Asia Partners, said in an e-mail statement. “Over these years, we have worked very closely with the company, company management and other shareholders in support of transforming China Pacific into one of the best run and most successful insurance companies in China and a Fortune Global 500 company.”

Carlyle and Newark, New Jersey-based Prudential Financial Inc. agreed in December 2005 to take a 25 percent stake in China Pacific Life Insurance Co., a unit of China Pacific, for 3.3 billion yuan, equivalent to $409 million at the time. The investment was converted into a stake in the parent company in 2007 and then into China Pacific’s Hong Kong-listed shares in 2009 as the insurer sold stock in the city.

Private-equity funds in China are holding 82 percent of the companies they’ve invested in since 2007 as the frozen market for initial public offerings keeps them from exiting, according to a report from China First Capital today.

Funds hold 6,584 companies after disposing of 1,445 and seeing 20 go bankrupt, according to the Shenzhen-based firm that advises on private equity and mergers.

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