China Taiping Insurance became the latest mainland company to raise funds through a private placement in Hong Kong, raising $1.7 billion in the secondary deal on Thursday.
The sixth largest equity deal in Asia Pacific ex Japan this year, the placement drew investors such as Yunfeng Capital, the private equity firm that counts Jack Ma’s family office and Tencent CEO Ma Huateng as investors, according to a source close to the deal. Fosun International also participated in the placement, the source added.
The placement comes one week after China Galaxy Securities launched a private placement with a $3.1 billion deal on April 27 and four months after Haitong Securities’ $3.9 billion share placement in December.
The speed of China Taiping’s top-up placement reflects bullish investor sentiment towards Chinese financial institutions. China Galaxy’s placement was in the works for months, while the China Taiping deal has only been marketed the past few weeks. “[China Taiping] wanted to take advantage of the sentiment towards Chinese financial firms now,” the source said. “Insurers are looking to raise capital, and large private equity raisings by Chinese financials will continue.”
UBS, Citi, HSBC and China Construction Bank Corp oversaw the placement.
Some 486 million shares were sold at HK$27.74 per unit, a tight 5% discount to the May 4 closing price of HK$29.20 per share, according to a term sheet seen by FinanceAsia. The deal was initially marketed at a 5% to 8% discount to the May 4 price, but demand allowed China Taiping to keep the discount at the low end, notable considering recent market volatility.
Since hitting 28,433.59 on April 27, Hong Kong’s Hang Seng Index has dropped 3.2% up to May 7, while the Shanghai Stock Exchange Composite Index sank 9.2% in the same time frame. The decline began following an announcement by Chinese regulators in mid-April warning investors to be cautious as both A-share and H-shares hit seven-year highs.
“The market’s traded off in the past two days leading up to the deal [and] the stock was suspended for two days before the pricing,” the source told FinanceAsia. “To have that outcome with a tight discount was impressive.”
Despite the drop, investors — both global and Chinese — remain keen to get a piece of Hong Kong-listed Chinese insurers and financials, which are currently much cheaper than their A-share listed counterparts. A-shares are trading at a 30.1% premium to H-shares as of May 7.
As such, the banks had no problem lining up demand for China Taiping, securing over 10 investors in the past few days. This allowed the insurer to be extremely selective when choosing investors for final allocations. Only ten investors participated in the final deal, a combination of Chinese corporates and institutions, as well as some international long-only institutional investors.
Yunfeng Capital received the single largest allocation in the deal, although the source noted that it wasn’t a majority stake. Both Yunfeng and Fosun’s investments are strategic, the source said.
For example, Yunfeng Capital and China Taiping may work together on e-commerce distribution channels for insurance, while Fosun and China Taiping may partner to make investments on the mainland, the source said.
China Taiping’s shares rose 0.86% from April 30 to May 4 before being suspended. Shares resumed trading on May 7 and dropped 1.37% as of mid-day Thursday. Year-to-date, shares are up 29.1%.
Proceeds from the share sale will go towards boosting the company’s capital strength.
Opening the door
The Hang Seng is up 16.6% year-to-date, while the Shanghai Stock Exchange Composite Index is up 27.1%. Despite the recent drops Hong Kong and China stock markets, mainland investors continue to flood into H-share markets to scoop up shares at reasonable valuations.
The mainland traffic into Hong Kong follows the March announcement by the China Securities Regulatory Commission that allows Chinese mutual funds to purchase Hong Kong-listed stocks via the Shanghai-Hong Kong Stock Connect without a QDII license.
“Hong Kong is opening the door for domestic liquidity [to come in],” said a second source not on the deal.
China Taiping’s private placement follows Ping An’s $4.75 billion share sale in December, a sale that attracted investors including Temasek and was launched after China’s central bank cut interest rates and pledged to inject extra credit into the financial system.
Indeed, the interest rate cut in November helped boost investor appetite in the Ping An placement — it attempted the same share sale on November 7 but failed.
China Taiping clearly sought to replicate Ping An’s success, timing the placement after the central bank cut interest rates from 5.6% to 5.35% on February 28. This most recent rate cut — the second cut in three months — is the bank’s latest attempt to prevent deflation risk and growth slowdown.
Chinese insurers are increasingly seeking more capital as assets expand and their investment appetite becomes more aggressive after the country’s insurance regulator loosened restrictions on investments.
In October 2012, the China Insurance Regulatory Commission relaxed limitations on domestic insurers investing overseas, allowing investments in 45 countries — 20 in Asia. It also widened the asset classes from equities and bonds to include infrastructure projects and real estate.
China Taiping’s net profits increased to HK$4.04 billion ($521.15 million) in 2014 compared with HK$1.53 billion in 2013. Most of the gains came in the second half of last year, due to a 54% year-on-year growth in investment income and a 46% fall in claims and benefits, according to a Citi research report dated March 27.
The insurer currently has a p/e ratio of 17.7 times.
Citic Securities has shareholder permission to issue up to 1.5 billion shares through a private placement structure similar to Haitong and China Galaxy.
Other financial institutions looking to come to market this year include Huatai Securities, Guolian Securities, Taikang Life, China Guangfa Bank and Huarong Asset Management.
GF Securities raised $3.6 billion in its Hong Kong listing, generating strong demand from both institutional and retail investors.