Hong Kong-based AMTD Group, which is backed by China Minsheng Investment, LR Capital, and Morgan Stanley, is planning to list its corporate insurance brokerage arm next year to help fund acquisitions and pave the way for a possible group listing.
The insurance unit provides advice on property damage insurance, motor vehicle insurance, and employee insurance to large corporations, including Li Ka-shing’s CK Hutchison, which accounted for half of its revenue last year.
According to a document obtained by FinanceAsia, the gross earnings of the insurance unit were about HK$38 million ($4.9 million) in 2015, when revenue totaled HK$47 million.
For 13-year-old AMTD, which started out as an independent financial advisor, the planned stock market flotation of its insurance arm next year could bolster its war chest for acquisitions elsewhere in the region and in developed markets too. In addition to its insurance and retail-focused IFA businesses, the group has asset management and investment banking operations, its largest by revenue.
In an interview with FinanceAsia, AMTD chairman Calvin Choi, who took the helm in February, said a public offering would help him try to consolidate the insurance broking industry in Hong Kong, where there is a mix of international players and local ones backed by the city’s property firms.
If successful, a listing of AMTD's insurance broking unit could be the first of its kind in Hong Kong.
To help raise the firm's profile among investors, Choi led AMTD's first dollar-denominated bond offering just a month after he joined, raising $110 million through the sale of three-year unrated paper.
But brand-building aside, the company is likely to have to raise more funds in the future anyway, given its lack of deposit funding and bank loans.
“AMTD will increasingly need to tap the [US dollar] wholesale funding market for future growth,” William Mak, a credit analyst at Nomura, said in a March 18 note.
“It would have been helpful if CK Hutchison (or Mr Li Ka Shing) still owned a majority stake, but that has been reduced to only 4.4% now and it looks likely that Mr Li will further reduce his stake in AMTD over time,” Mak said.
Choi did not reveal his valuation of the group's insurance business nor the amount he planned to raise, citing legal concerns, but he said he will officially mandate investment banks to work on the initial public offering in the next two to three months.
“The net profit at the insurance unit could exceed HK$100 million ($13 million) at the time when conducting an IPO next year,” Choi, a former UBS banker, said.
In an effort to ramp up its insurance business, AMTD said in January that it had entered into strategic co-operation agreements with KEB Hana of Korea and Yango Holdings, a Fujian-based financial services-to-education conglomerate, to work on the restructuring of Sirius, a re-insurer bought last year by China Minsheng Investment for $2.24 billion.
AMTD has teamed up with China Minsheng Investment, a private equity firm backed by some of the country’s most well-known private enterprises, to tempt investors with what it argues will provide a springboard for the overseas expansion of China’s private sector.
“Our aim is to provide a one-stop solution to our clients, Choi said, adding that we provide insurance broking services, fundraising, and M&A advisory expertise
Choi spent more than six and a half years as a managing director at UBS’s investment banking and wealth management unit. According to Choi, he secured $1 billion-worth of orders for China Everbright Bank’s $3 billion 2013 listing in Hong Kong, making him one of the top bankers at the Swiss bank. Before that he was an executive director at Citi’s investment banking division.
To beef up its deal-sourcing capacity, AMTD hired Cliff Ip from JP Morgan and Emily Shi from UBS to help run its investment banking business. Ip and Shi joined the company in April and February, according to their Linkedin profiles. The duo are both managing directors and co-heads of investment banking at the firm.
Some of that effort already appears to be paying off. AMTD was the joint global coordinator on Bank of Tianjin's March 2016 IPO, raising $949 million for the Chinese lender. It was also a joint global coordinator in Bank of Qingdao's $604 million IPO in November last year.
AMTD also wooed William Fung, a former UBS debt syndicate banker, and Mark Lo, a former fund manager at PineBridge Investment, to help run its investment arm.
To compete more effectively with the bulge-bracket banks, AMTD is working closely with its two new shareholders, China Minsheng Investment and LR Capital, to improve its network of connections with China’s burgeoning private sector and to eke out new business opportunities.
If all goes according to plan, AMTD's insurance business IPO could just be a forerunner for the wider group.
“The growth of China's private sector is impressive, even though the overall economy slows," Choi said. "The strong momentum in the private sector could lead AMTD group to decide [on] a listing [too] after the IPO of our insurance unit."
LR Capital is a low-key family office, but it has invested in extensively in China and Hong Kong stock markets. The firm invested $250 million as a cornerstone investor in GF Securities’ $3.6 billion Hong Kong IPO in March last year.
Founded in May 2014, China Minsheng Investment is headquartered in Shanghai and was formed by 59 private enterprises, according to its website. The private equity firm has Rmb$50 billion in registered capital and was founded by a former president of China Minsheng Bank, the country’s first non-state-owned lender. Hong Kong-listed property developer Yida and Shi Yuzhu, billionaire founder of online gaming company Giant Interactive, are among its investors.
China Minsheng Investment’s stake in AMTD gives the Hong Kong company greater access to the country’s growing number of Chinese billionaires. According to a Hurun "China Rich List" report, there were 354 billionaires in China in 2014, compared from only three a decade ago.