HSBC Insurance (Asia-Pacific) announced Thursday that it has signed an agreement to increase its shareholding in Bao Viet Holdings, Vietnam's largest insurance and financial services group, to 18% from 10% at a cost of about $105.3 million.
HSBC acquired a 10% interest in Bao Viet in September 2007 and, according to the original agreement, it had an option to purchase a further 8% of Bao Viet's shares from the Ministry of Finance (MoF). The MoF recently gave formal consent for this option to be exercised through the issue of new Bao Viet shares to HSBC.
"Our additional investment in Bao Viet reflects the successful partnership we have enjoyed over the last two years and the confidence we have in the long-term growth prospects of Bao Viet and of Vietnam. This is also entirely consistent with our stated strategic focus on the world's faster growing markets and our intention to meet the insurance and wealth protection needs of our customers in these rapidly developing markets," Michael Geoghegan, HSBC's group chief executive, said in a press release.
"After two years of successful co-operation, we are pleased HSBC is able to increase its shareholding to 18%. The Ministry of Finance has supported the private placement as an alternative approach to acquiring shares from the ministry. The increased shareholding by HSBC adds to the financial position of Bao Viet and its capacity to finance its growth and development. It also reflects HSBC's commitment as the most important strategic shareholder in Bao Viet," Le Quang Binh, Bao Viet's chairman, added in the same statement.
Approximately 53.68 million new Bao Viet shares will be issued to HSBC through a private placement. Completion of the deal is subject to shareholder approvals and other conditions, as well as approval from Vietnam's State Securities Commission.
As part of the original agreement, HSBC continues to hold certain pre-emptive rights to acquire shares currently owned by the MoF. HSBC can increase its shareholding to a maximum 25% within the first five years of the agreement, and to prevailing foreign ownership limits thereafter.
With a population of 87 million, a quarter of which is under the age of 15, many foreign banks see growth potential across banking businesses in Vietnam. But insurance stands out. David Fried, chairman and chief executive officer of HSBC Insurance for Asia- Pacific, noted: "We see great potential in a country where the insurance penetration is only at 1.4% of GDP."
And Bao Viet is a logical choice to partner up with if you want to grow the insurance business. Established in 1965, Bao Viet has a network of more than 400 outlets spread across 63 provinces. In 2009, it became a listed company on the Ho Chi Minh City Stock Exchange and established Bao Viet Bank.
In addition to its strategic investment in Bao Viet, HSBC also holds a 20% stake in Vietnam Technological and Commercial Joint Stock Bank (Techcombank). HSBC locally incorporated its Vietnam operations in January this year, and since then it has expanded its distribution network from two branches and one representative office to 10 outlets currently. It has also partnered with Vietnam Posts Corporation to provide access to some of HSBC's banking services for customers at more than 1,600 post offices across the country.
