China Steps Up Scrutiny as Insurers' Buying Spree Sweeps VankeBloomberg News
Regulator adds disclosure requirements on stock purchases
Smaller insurers snap up developers, banks to boost returns
Chinese regulators told insurers to make timely disclosures on investments in public stocks amid a buying spree that has included China Vanke Co., triggering a fight over control of the nation’s largest listed developer.
Insurers should publicize details on transaction type, funding sources and other parties acting in concert within two days after a listed company discloses that their total ownership or additional purchases exceed 5 percent of its stock, according to China Insurance Regulatory Commission rules posted Wednesday evening on its website.
The new rules came hours before Vanke issued a midnight statement to welcome Anbang Insurance Group Co. as an ally after the insurer boosted its stake in the Shenzhen-based homebuilder, potentially helping it fend off what Vanke management labels a “hostile takeover” by the Baoneng Group.
The disclosure requirements followed rules earlier this month ordering insurers to conduct stress tests on their investments. The industry watchdog is seeking to contain risks after smaller insurers led by Anbang and Baoneng’s Foresea Life Insurance Co. snapped up shares of listed companies such as developer Gemdale Corp. and China Minsheng Banking Corp. to boost returns amid falling interest rates.
"The insurers have been purchasing like crazy these days and that’s having a negative impact on the market, which explains why the regulators are taking a more prudent stance,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research, said by phone.
While they still face very strong pressures to boost yields next year, buying stocks for the mere purpose of returns, especially short-term returns, could fuel speculation in the market, increasing risks, Chen said.
Anbang raised its holding in Vanke’s Shenzhen-listed shares on Dec. 17 and 18, to 7.01 percent from 5.69 percent, before the A shares were halted on Friday pending a share sale and an asset restructuring, according to filings on Tuesday to the Hong Kong stock exchange.
Vanke said that while it conducted “highly effective” communications with Anbang after the stake increase and is willing to work together to explore global opportunities, it has yet to receive a satisfactory explanation for why Baoneng has built its stake.
All 12 smaller, closely held insurers tracked by Ping An Securities Co. more than doubled their gross premiums in the first 10 months of this year from a year earlier, as they boosted sales of high-return products to expand revenue and fend off competition from banks’ wealth management products. That compared with less than 20 percent growth among the bigger, listed rivals.
At a time of falling interest rates, that puts them under "relatively large" pressure to allocate the funds, making bulk stock purchases the main solution, analysts at Ping An Securities led by Jiao Wenchao wrote in a Dec. 13 report.
Foresea Life offered returns as high as 7.5 percent to policyholders of universal-life contracts, its main product, in November, dwarfing a range of 4.5 percent to 5 percent among bigger rivals, according to the report. Foresea Life now owns 23.52 percent of Vanke together with fellow Baoneng unit Shenzhen Jushenghua Co. after displacing China Resources Co. as the developer’s biggest shareholder.
The insurers have favored investments in leading property companies like Vanke, Gemdale and Financial Street Holdings Co., national banks such as Minsheng and China Merchants Bank Co., low-valuation stocks like Daqin Railway Co., and high cash-flow companies like beverage maker Hebei Chengde Lolo Co., according to Ping An Securities. Possible targets include lenders like Bank of Beijing Co., Bank of Nanjing Co. and stocks in the railway and highway sectors, and power companies, the analysts wrote in the report.
— With assistance by Dingmin Zhang