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China’s insurance regulator has approved the sale of HSBC’s remaining $7.43 billion stake in Ping An Insurance to Charoen Pokphand (CP), a Thai conglomerate controlled by Dhanin Chearavanont, Thailand’s richest man.
The approval means that he is getting even richer. Having agreed to pay a total of $9.39 billion for a 15.57% stake, the value of CP’s holding is already worth $1.9 billion more than when the deal was struck on December 5, thanks to a 17% rise in the price of Ping An’s Hong Kong-traded shares.
CP is paying HK$59 a share, which at the time of the agreement was just HK$1 below the 30-day average price. On Friday, the stock closed at HK$70.85 after rallying since the start of January.
The first part of the deal closed on December 7, when a group of subsidiaries owned by CP paid $1.95 billion for a 3.24% stake in Ping An — roughly one-fifth of the overall deal. But the rest of the acquisition looked to be on the rocks in late December after questions were raised about CP’s funding.
In a statement to the stock exchange at the time, HSBC said that CP’s acquisition of the remaining shares would be financed partly in cash and partly through the Hong Kong branch of China Development Bank (CDB).
However, CDB then seemed to distance itself from the acquisition, which was also still subject to approval from the China Insurance Regulatory Commission.
The omens seemed to suggest a cool attitude to the deal in Beijing, and it is not surprising that the sale of a significant domestic asset to a foreign buyer raised some heckles, but the reality is that Ping An will likely end up with less foreign interference as a result of swapping HSBC for CP.
The Thai group has no other significant financial industry assets and is expected to be a passive shareholder — its core businesses are agribusiness and food, retail and telecommunications. It will not be seeking a seat on the board of directors, according to one source, which will give Ping An’s management more effective control of the company than if a state-owned bank or insurer had bought HSBC’s stake.
Meanwhile, CP is hoping to repeat the financial success of HSBC’s ownership. The bank invested $1.6 billion between 2002 and 2005, and has calculated that it will make a $2.6 billion after-tax profit from the sale.
After the controversy over CDB’s funding, CP paid for the acquisition in cash, according to HSBC, and reportedly did not draw on the CDB facility.
The disposal is part of HSBC’s continuing plan to sell assets that it no longer considers core to its business. The sale also anticipates new bank-capital rules out of Basel, which make it less attractive for banks to be involved in the insurance business.
However, HSBC will struggle to find a better way of deploying the newly freed capital. Ping An contributed $946 million to HSBC’s profits during 2011 and $848 million during 2010 — on an investment with a carrying value of $6.37 billion at the end of 2011.
The CP subsidiaries buying the shares are All Gain Trading, Bloom Fortune Group, Business Fortune Holdings and Easy Boom Developments.
Founded in 1921, the CP group employs more than 280,000 people and invests in 15 countries worldwide, generating more than $33 billion in revenue for 2011.
Completion of the transfer of the second lot of shares is expected to take place on February 6, 2013.
There were no external financial advisers involved. Freshfields Bruckhaus Deringer advised HSBC on the sale, while Linklaters represented CP and Clifford Chance acted for CDB.
