Newbridge sells $1.25 billion stake in Ping An

A fund run by Newbridge Asia last night sold just over half the H-shares in Ping An Insurance (Group) that it received last week as payment for its 4.7% stake in Shenzhen Development Bank. Despite the somewhat challenging market environment right now and the large size of the offering, the deal was priced above the bottom of the range for a tight 4.6% discount and a total deal size of HK$9.7 billion ($1.25 billion).

At that size, this is the largest placement in Hong Kong by far this year and also the largest in Asia, exceeding the Korean government's $1.03 billion sell-down in Woori Finance Holdings in early April.

Given that Newbridge had owned the shares for such a short time, and had in fact never actually invested in Ping An, investors didn't seem too concerned about the fact that it was selling down its stake. Instead, they treated the placement as a one-off opportunity to buy Ping An shares in bulk, which resulted in a high-quality order book with a mixture of long-only funds and hedge-funds. The demand from long-only accounts in particular was instrumental in pushing the price inside the range.

According to a source, the deal was covered quite quickly and when it closed after just two-and-a-half hours of bookbuilding it had attracted orders for more than $2.4 billion and more than 100 investors.

The offering comprised 160 million shares, which accounted for 5.6% of Ping An's outstanding H-shares and 2.1% of the overall share capital. They were offered in a range between HK$60.52 and HK$61.28, which represented a discount of 3.5% to 4.7% versus yesterday's closing price of HK$63.50.

The range was tight to begin with for this large a trade -- aside from being above $1 billion, it also accounted for close to 20 days' worth of trading volume based on the daily average over the past three months -- especially since the share price gained 3% yesterday. However, the stock did fall 9.9% last week and is down 6.6% year-to-date.

The final price was fixed at HK$60.60, or at a 4.6% discount, which is tighter than both the two deals that ranked as the year's largest Hong Kong placements until this one -- the $601 million top-up placement by container ports operator Cosco Pacific, which came at a 9.9% discount, and a $600 million sell-down in clothing retailer Esprit Holdings at 6%. Both those deals were priced at the maximum discount on offer.

Market watchers say investors are starting to warm towards insurance companies since they tend to do well in a rising interest rate environment and, among the 26 analysts who cover Ping An according to Bloomberg, 19 have a "buy" on it, while seven rate it as a "neutral" holding. None of the analysts recommends investors to sell at this point. However, there is a lot of new equity issuance expected from the Chinese financial sector in the coming months, so it was perhaps smart of Newbridge to make its move early.

The private equity investor, which is a subsidiary of US-based TPG, will still hold about 139 million shares in Ping An, which will be locked up for 60 days. The remaining stake accounts for about 4.9% of Ping An's outstanding share capital.

The Newbridge sell-down was arranged by Goldman Sachs on a sole basis following competitive pitching by several banks -- a nice win for the bank since it has been quite a long time since a block of this size was put up for competitive bidding. And given that the seller only approached banks after the Hong Kong close today, the deal was done without getting any soft commitments from investors before launching the deal. Goldman also ran the books for the Cosco Pacific placement together with J.P. Morgan, while the earlier Esprit transaction was arranged by UBS.