HSBC's sale of Ping An stake draws mounting scepticism
- Published: 9/01/2013 at 05:21 PM
- Online news:
The sale by HSBC Holdings Plc (HSBA) of its stake in Ping An Insurance (Group) to Thai billionaire Dhanin Chearavanont is under question, with speculation that Chinese regulators may block the US$9.4 billion deal.
Regulations set by China's insurance watchdog may bar the use of external financing for such deals, Esther Chwei, an analyst at Deutsche Bank AG in Hong Kong, said in a note.
China Development Bank, a policy lender that had agreed to fund part of the purchase for Dhanin's Charoen Pokphand Group Co, has canceled its loans, Caixin reported on Tuesday.
CP Group has sought to allay concerns that it is backed by other investors, saying last month it used "legal capital" to buy part of the stake in China's second-largest insurer. Dhanin, 73, is making a rare foray into financial services after having spent 43 years building a family seed business into Thailand’s biggest agricultural company and conglomerate.
"The main issue here is not about financing because even if CDB backs off, there will be other banks that are willing to offer loans to CP," said Wilson Li, a Shenzhen-based analyst at Guotai Junan Securities Co. "The issue is about how the regulator views the buyer and the structure of the deal: I don’t think that’s favorable at the moment."
The Thai company's assistant vice president Suthana Hongthong declined to comment, and CDB's Beijing-based spokesman Xu Fei did not return six calls to his office or mobile phones.
Dhanin Chearavanont (Reuters photo)
HSBC said Dec 5 it agreed to sell its 15.6% holding in Ping An to four subsidiaries of CP Group in two phases. The first stage, comprising shares valued at about HK$15 billion ($1.9 billion), was scheduled for Dec 7. The sale of the remaining shares requires approval from the China Insurance Regulatory Commission by Feb 1, or an extension of the accord.
HSBC's Hong Kong-based spokesman Gareth Hewett on Wednesday declined to comment on the status of the transaction. Two calls to CIRC’s office in Beijing were not returned.
"It's prudent for regulators to examine large deals involving key companies and strategic assets,” Sandy Mehta, chief executive officer of Value Investment Principals Ltd, said by telephone on Wednesday. "It's difficult to say what conclusion the regulators will arrive at."
Shares of Ping An on Tuesday declined 4%, the biggest drop in more than five months, in Hong Kong trading, and swung between gains and losses today. The stock was up 0.7% to HK$68.60 on Wednesday afternoon.
Ping An spokesman Sheng Ruisheng said on Tuesday that the deal was in a "normal approval process" and the Shenzhen-based insurer had no additional information.
Caixin, whose editor in chief Hu Shuli was described by the New Yorker as "China's Avenging Angel" for her investigative journalism, last month said that most of CP Group's first payment for the stake came from investors including Chinese businessman Xiao Jianhua.
Xiao used money from three municipal commercial banks that he controls to help CP Group finance the purchase of 3.5% of Ping An shares from HSBC, Caixin said on Dec 22. The funds were returned to the three lenders within 20 days, the magazine said, citing sources it did not identify.
Xiao said in a Dec 23 statement that he was not involved in the transaction, according to Caixin's report on Tuesday. Efforts to contact Xiao in Hong Kong were unsuccessful.
CP Group said on Dec 25 that the acquisition of the shares was legal and the source of funding was "transparent." Dhanin's net worth was an estimated $6.2 billion on Dec 7, according to the Bloomberg Billionaires Index. Almost 60% of the fortune is from overseas private companies.
The group also pointed to its historical ties to China -- from becoming the first foreign investor after Deng Xiaoping opened the economy in 1979 to its continued management of local agricultural projects -- and made a pitch for how it can help develop rural areas through its investment in Ping An.
"CP had cooperated well with the Chinese government," according to the e-mailed statement. "CP is confident in the development of Ping An Insurance and aims to collaborate with Ping An Insurance to develop every sector in the rural area, which is in line with the policy of modernising China's agricultural sector."
Still, CDB’s Hong Kong unit was ordered by officials in Beijing to cancel HK$44 billion in loans to the Thai group, Caixin said on Tuesday. That adds to uncertainty about CP Group's ability to buy part of Ping An, said Jim Antos, a Hong Kong- based analyst at Mizuho Securities Asia Ltd.
"It wouldn’t be surprising for the CIRC to reject the deal as currently proposed," Antos wrote in an e-mail. "What is surprising is that the vetting process hadn’t been completed before details of the sale were released to the public."
About the author
- Writer: Bloomberg News
Position: News agency