HSBC’s $7.4 Billion Sale of Ping An Stake Set to Expire

HSBC Holdings Plc’s agreement to sell a $7.4 billion stake in Ping An Insurance (Group) Co., China’s second-largest insurer, to Thai billionaire Dhanin Chearavanont is set to expire tomorrow.

HSBC agreed on Dec. 5 to sell its 15.6 percent holding in Ping An to Dhanin’s Charoen Pokphand Group Co. for about $9.4 billion. The first stage, for about HK$15 billion ($1.9 billion), was completed Dec. 7. The pact for the rest expires if China’s insurance regulator doesn’t approve the deal by 11:59 p.m. tomorrow and the two sides don’t agree to an extension.

Speculation that the sale may be rejected mounted following reports that China Development Bank Corp. withdrew loans and CP Group got some funding from businessman Xiao Jianhua. Failure of the deal, which would generate $2.6 billion in profit for HSBC, would be a setback for Chief Executive Officer Stuart Gulliver as he seeks to revive earnings.

“The odds are high that the agreement will be extended, given that the buyer may need more time to prove its ability to finance the purchase,” said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi International Ltd. “CP Group has a strong motivation to make the deal happen because its purchase price is much lower than the current market price.”

Shares Increase

Shares in Ping An, China’s second-largest insurer, slipped 0.5 percent to HK$69.60 at 10:05 a.m. in Hong Kong. That’s a gain of 21 percent since Dec. 4, the day before the sale was announced, and 18 percent above the HK$59-a-share that CP Group agreed to pay. Core Pacific’s Xia yesterday raised her price estimate to HK$79.50.

HSBC rose 0.1 percent to HK$88.15 today.

Gareth Hewett, a Hong Kong-based spokesman for HSBC, declined to comment on the progress of the deal, as did a press official at the China Insurance Regulatory Commission who asked not to be identified due to the agency’s policy. C.K. Suthana Hongthong, CP Group’s assistant vice president for corporate communications, also declined to comment.

“If the deal doesn’t come through, Ping An is the one to be impacted instead of HSBC,” said Steven Chan, an analyst at Citic Securities International Co., who recommends buying the bank’s shares. “There would be overhang on Ping An because of doubts on when HSBC will sell its stake, and how.”

Caixin Online reported in December that about two-thirds of CP Group’s payment for the first phase came from other investors and that Ping An’s management may have helped finance the Chinese backers. Both the insurer and CP Group denied the report at the time.

China Development Bank halted loans to the Thai company because of the involvement of undisclosed investors, Caixin reported on Jan. 8. Xiao said in a Dec. 23 statement that he wasn’t involved in the transaction, according to that report.

Regulatory Review

CIRC asked Ping An for more information about the transaction, the regulator said Jan. 10, after conducting a preliminary review of the application. It didn’t give details about the information requested.

HSBC reaffirmed on the same day that its original statement, which said China Development Bank would finance part of the purchase, was still accurate. A day later, CP Group said it has the resources to complete its planned purchase.

The sale is the 37th divestment by Gulliver, 53, who is seeking to focus on growing economies in which the bank has the greatest market share. It would have followed the March 2011 sale of general insurance units in Asia and Latin America for about $914 million.

— With assistance by Dingmin Zhang, and Jun Luo

Before it's here, it's on the Bloomberg Terminal.