Ping An to invest in Shenzhen Development Bank

Ping An Insurance announced on Friday that it is to become a strategic investor in Shenzhen Development Bank (SDB). The move will help the insurer achieve its goal of becoming an integrated financial services company, and will also boost SDB's capital adequacy ratio.

The acquisition of the SDB stake will be a two-part process. There is a private placement, in which Ping An will subscribe to new shares in the bank. As well as that, the insurer will buy the entire stake held by SDB's largest shareholder, financial sponsor Newbridge Capital, either for cash or through a share swap. Following the two transactions, Ping An will own no more than 30% of the bank.

Ping An will pay up to Rmb22 billion ($3.2 billion) for the stake if it pays entirely in cash. This is almost exactly the same amount that Ping An agreed to pay for Fortis Group's global asset management business early last year. The deal was terminated in October when the European bank was partially nationalised by the governments of Belgium, the Netherlands and Luxembourg.

In the private placement, Ping An will buy between 370 million and 585 million new SDB shares for Rmb18.26 each. The price is the average trading price of the stock for the 20 days prior to June 5, the day that it was suspended pending the acquisition announcement; and represents an 8.7% discount to the last trading price. The subscription shares are subject to a three-year lock up. The price for these shares will be up to Rmb10.6 billion.

Ping An will buy a further 520 million shares before the end of 2010 from Newbridge Capital, a subsidiary of Texas Pacific Group Capital. Newbridge acquired the shares in 2004 in a landmark deal that marked the first time in recent history that a foreign investor had bought shares in a Chinese bank. Newbridge had large plans for its investment in SDB, said sources, but was not able to navigate the regulatory framework in China. It is nonetheless making a healthy return on its investment; media has speculated it will make five times the initial investment.