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Ping An Insurance’s HK$36.8 billion ($4.75 billion) share sale attracted investors including Temasek and a mainland Chinese tycoon, according to a source.
The bumper share sale by China's second-largest insurer by market share comes after China's rate cut boosted investors' appetite for stocks.
The private placement of Ping An’s H-shares bumped Morgan Stanley, who orchestrated the share sale, to the top of Dealogic’s equity capital market league tables, overtaking Goldman Sachs.
Ping An’s successful private placement at a tight discount to where the stock was trading illustrates a shift in investor appetite after a six-week lull. Ping An was able to sell 594.1 million new shares at HK$62 per unit, at a tight discount of 4.7% to Friday’s closing price of HK$65.05 per share.
The average discount for H-share primary follow-ons of $50 million or above in 2014 year-to-date including Ping An’s sale is 7.8% according to date provider Dealogic.
Investor sentiment was boosted two weeks ago when China’s central bank cut interest rates and pledged to inject extra credit into the financial system. The change this wrought in investors’ sentiment is sharply illustrated by the fact that Ping An attempted this same share sale on November 7 but failed.
Second time around
On November 7 Ping An said it had won Chinese regulator CSRC's approval to issue up to 626 million additional H shares.
The approval was consistent with Ping An's board resolution on July 15 but the November press release was unintended and took place because neither Ping An nor its bankers had obtained a waiver from the regulator saying it could keep the approval secret, according to people familiar with the process.
The Chinese insurer suspended trading in its shares, fearing a plummet in its stock price, on the Hong Kong exchange on Friday November 7 and asked Goldman and Credit Suisse to sell the stock over the weekend. However, the bankers failed to find buyers at discount tight enough to Ping An’s share price for the company to stomach.
One benchmark for the share sale was HSBC’s sale of its 15.6% stake in Ping An to the Charoen Pokphand Group, an unlisted conglomerate controlled by Thai billionaire Dhanin Chearavanont, for HK$72.7 billion, or HK$59 per share, in January 2013.
Ping An’s shares dropped 3% on November 7 to HK$59.70 per share on November 10, and fell a further 3% up to November 21.
The overhang of unsold stock meant that Ping An's shares underperformed its peers. Between November 7 and November 21 China Taiping Insurance shares jumped 15%.
Other bankers saw the opportunity to sell the shares on behalf of Ping An and present the insurer with more attractive pricing. Morgan Stanley sounded out a few key investors, including the Chinese tycoon, and when Ping An’s price jumped on the back of the Chinese rate cut news the bank pounced on the opportunity to crystallise the deal.
Goldman and Credit Suisse were also ready to make a second attempt at the share sale but Morgan Stanley won the mandate.
The sale marks the sixth-largest primary follow-on in the FIG sector on record according to Dealogic.
Morgan Stanley was global coordinator, bookrunner and sole placing agent for the private placement, while Credit Suisse and Goldman Sachs were demoted to joint financial advisers.
Ping An’s shares fell just 0.31% on Monday after the placement closing at HK$64.85 per share.
Where will the money go?
The proceeds from the share sale will boost the company’s equity and working capital, and help fund business development of its core businesses, Ping An said in a statement.
Chinese insurers are increasingly seeking more capital as assets expand and their investment appetite becomes more aggressive after the country’s insurance regulator loosened restrictions on investments.
In October 2012, the China Insurance Regulatory Commission relaxed limitations on domestic insurers investing overseas, allowing investments in 45 countries — 20 of them in Asia. It also widened the asset classes from equities and bonds to include infrastructure projects and real estate.
The risk exposure of Chinese insurers will increase over the next few years as their businesses grow, said Standard & Poor's Ratings in a report dated November 16.
"In many cases, capitalisation is already stretched and could be further strained as asset bases expand and investment appetites become more aggressive," said Standard & Poor's credit analyst Terry Sham. "Earnings may become more volatile for those insurers chasing investment yields."
Other Chinese insurers are raising capital. PICC Property & Casualty, China’s largest non-life insurer, said last month it aims to raise Rmb7.25 billion in a rights offering, while China Tiaping, the first Chinese insurer to be listed overseas, also aims to raise as much as HK$6.43 billion in a rights issue.
"Any potential capital raised could be used to fund Ping An Group's future growth expansion, including Ping An Bank," said Goldman Sachs analyst Mancy Sun in a note on November 9.
In late 2013 Ping An raised Rmb26 billion via a convertible bond and injected Rmb15 billion into Ping An Bank. Ping An plans to subscribe to Rmb4.5 to Rmb5 billion of shares issued by Ping An Bank.
Market conditions appear to be stabilising in the life insurance sector. In its study of the top 25 insurers in China by premiums, Standard & Poor's said the earnings of life insurers have improved in the past two years and their reliance on low-margin bancassurance products is reducing.
Ping An reported earnings for the first nine months of 2014 of Rmb31.8 billion ($5.2 billion), a 35.8% increase over the same prior year period. In addition to the traditional business growing rapidly, the internet finance business experienced a rapid increase in both users and transaction volume. The number of registered users surpassed 2 million, while transaction volume of financial assets surged by 5 times, Ping An said in its statement.
The investor list has been updated from an earlier version.
