HSBC’s Sale of Ping An Stake Draws Mounting Skepticism

HSBC Holdings Plc’s proposed sale of its stake in Ping An Insurance (Group) Co. to Thai billionaire Dhanin Chearavanont is facing speculation that Chinese regulators may block the $9.4 billion deal.

Current rules from China’s insurance watchdog may bar the use of external financing for such deals, Esther Chwei, an analyst at Deutsche Bank AG in Hong Kong, said in a note. China Development Bank, a policy lender that had agreed to fund part of the purchase for Dhanin’s Charoen Pokphand Group Co., has canceled its loans, Caixin reported yesterday.

CP Group has sought to allay concerns that it’s backed by other investors, saying last month it used “legal capital” to buy part of the stake in China’s second-largest insurer. Dhanin, 73, is making a rare foray into financial services after having spent 43 years building a family seed business into Thailand’s biggest agricultural company and conglomerate.

“The main issue here isn’t about financing because even if CDB backs off, there will be other banks that are willing to offer loans to CP,” said Wilson Li, a Shenzhen-based analyst at Guotai Junan Securities Co. “The issue is about how the regulator views the buyer and the structure of the deal. I don’t think that’s favorable at the moment.”

The Thai company’s assistant vice president, Suthana Hongthong, declined to comment, and CDB’s Beijing-based spokesman Xu Fei didn’t return six calls to his office or mobile phones.

Strategic Asset

HSBC said Dec. 5 it agreed to sell its 15.6 percent holding in Ping An to four subsidiaries of CP Group in two phases. The first stage, comprising shares valued at about HK$15 billion ($1.9 billion), was scheduled for Dec. 7. The sale of the remaining shares requires approval from the China Insurance Regulatory Commission by Feb. 1, or an extension of the accord.

HSBC’s Hong Kong-based spokesman Gareth Hewett today declined to comment on the status of the transaction. Two calls to CIRC’s office in Beijing weren’t returned.

“It’s prudent for regulators to examine large deals involving key companies and strategic assets,” Sandy Mehta, chief executive officer of Value Investment Principals Ltd., said by telephone today. “It’s difficult to say what conclusion the regulators will arrive at.”

Shares of Ping An yesterday declined 4 percent in Hong Kong, the biggest drop in more than five months, and today rose 0.9 percent to HK$68.75.

HSBC rose 7.7 pence, or 1.2 percent, to 666.9 pence at 11 a.m. in London, the smallest gain in the six-member FTSE 350 Banks Index.

Chinese Investors

Ping An spokesman Sheng Ruisheng said yesterday that the deal was in a “normal approval process” and the Shenzhen-based insurer had no additional information.

Caixin, whose editor in chief Hu Shuli was described by the New Yorker magazine as “China’s Avenging Angel” for her investigative journalism, last month said that most of CP Group’s first payment for the stake came from investors including Chinese businessman Xiao Jianhua.

Xiao used money from three municipal commercial banks that he controls to help CP Group finance the purchase of 3.5 percent of Ping An shares from HSBC, Caixin said on Dec. 22. The funds were returned to the three lenders within 20 days, the magazine said, citing sources it didn’t identify.

Xiao said in a Dec. 23 statement that he wasn’t involved in the transaction, according to Caixin’s report yesterday. Efforts to contact Xiao in Hong Kong were unsuccessful.

First Investor

CP Group said on Dec. 25 that the acquisition of the shares was legal and the source of funding was “transparent.” Dhanin’s net worth was an estimated $6.2 billion on Dec. 7, according to the Bloomberg Billionaires Index. Almost 60 percent of the fortune is from overseas private companies.

The group also pointed to its historical ties to China -- from becoming the first foreign investor after Deng Xiaoping opened the economy in 1979 to its continued management of local agricultural projects -- and made a pitch for how it can help develop rural areas through its investment in Ping An.

“CP had cooperated well with the Chinese government,” according to the e-mailed statement. “CP is confident in the development of Ping An Insurance and aims to collaborate with Ping An Insurance to develop every sector in the rural area, which is in line with the policy of modernizing China’s agricultural sector.”

Still, CDB’s Hong Kong unit was ordered by officials in Beijing to cancel HK$44 billion in loans to the Thai group, Caixin said yesterday. That adds to uncertainty about CP Group’s ability to buy part of Ping An, said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd.

“It wouldn’t be surprising for the CIRC to reject the deal as currently proposed,” Antos wrote in an e-mail. “What is surprising is that the vetting process hadn’t been completed before details of the sale were released to the public.”

The China Insurance Regulatory Commission will likely veto the deal because funding has not been arranged, the Wall Street Journal reported, citing people familiar with the matter it did not name.

(Updates shares from ninth paragraph.)
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