New China Life targets $4 billion IPO

Apparently not all issuers are daunted by the market crash. New China Life Insurance, the country’s third-biggest life insurer in terms of premiums, filed an application yesterday to the Hong Kong exchange to raise up to $4 billion in a dual initial public offering in Hong Kong and Shanghai.

If approved, the deal will test investor confidence in a market that has recorded historically poor performance and an industry that is still very immature in China.

New China Life’s deal is the first sizable IPO in region after Standard & Poor’s downgraded the US’s credit rating. The company plans to list in the two cities in October, according to sources.

The news came as a surprise to a market that is still struggling to digest the US downgrade and deepening European debt crisis.

Apart from New China Life, Citic Securities is also preparing for a listing, which the firm hopes will take place in September, a source said. China’s biggest brokerage submitted its listing application to the Hong Kong stock exchange in June for a share sale that has been estimated at around $3 billion.

People familiar with the situation said there is actually a queue of companies waiting to come to market as soon as the dust settles. Even before S&P’s announcement, several companies had already decided to call off their listing plans. Last week, China Shipping Nauticgreen postponed its up to $193 million Hong Kong IPO, while China Everbright Bank delayed a $5.6 billion share sale in the city for the second time in less than two months.

Founded in 1996, New China Life’s insurance premiums reached Rmb93.6 billion ($14.3 billion) last year, making it the country’s third-biggest insurer after China Life Insurance and Ping An Insurance, according to the China Insurance Regulatory Commission.

New China Life, in which Zurich Financial Services owns a 15% stake, is said to have hired BoA Merrill Lynch, BNP Paribas, CICC, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan and UBS to manage the deal.

China’s insurance industry was almost non-existent before the 1980s, apart from some foreign players’ short appearance a century ago. However, even after three decades of development, the sector remains immature and plagued by questionable sales practices and basic business models.

The most common insurance product is to pay a premium for up to 20 years and get a return, along with protection to immediate family members in case of death. It is really regarded as a long-term saving plan rather than an investment product.

However, China’s huge population and the rise in household incomes make domestic life insurers attractive to investors, especially when most of their foreign peers are not allowed to operate in the country independently and lack the reach of the domestic players.

The market will be watching closely to see if New China Life can list successfully.