The guessing game on potential buyers of HSBC‘s Ping An stake ended yesterday when the bank said it will sell its entire holding in China’s leading insurer to a Thai conglomerate, in a deal that would allow the bank to pocket a $2.6 billion profit and slightly boost its core capital ratio.
The British bank has agreed to sell its 15.6% stake in Ping An to the Charoen Pokphand Group, an unlisted conglomerate controlled by Thai billionaire Dhanin Chearavanont, for HK$72.7 billion ($9.4 billion), or HK$59 per share. The deal will be partly financed by China Development Bank (CDB), a wholly state-owned policy lender.
CP Group has been doing business in China, where it is known as Chia Tai, since the country first started to open its doors after 1979. It also has a listed subsidiary in Hong Kong, CP Pokphand, which operates a holding company for some of the group’s investments in China and Vietnam.
However, it was not a buyer that many had been expecting. The group has limited experience in the financial services industry, specialising mostly in agriculture and manufacturing, though it has previously owned a Thai insurance business and currently owns Shanghai’s Zheng Xin Bank. Analysts expect it to be a stable new owner for Ping An.
For HSBC, the question now is how the bank will use the proceeds and what its next move will be.
“This transaction represents further progress in the execution of the group’s strategy,” said Stuart Gulliver, HSBC group chief executive, in a statement. “China remains a key market for the group and we will strengthen our focus on growing our own operations and building on our long-term strategic banking partnership with the Bank of Communications.”
Bank of Communications (BoCom) and Ping An are HSBC’s most significant investments in China, contributing an average of 3% to 4% of overall pre-tax profits for the HSBC group, according to Citic Securities. HSBC earns a 14% return-on-equity from its Ping An stake.
“HSBC may not be able to find alternative investments that offer similarly profitable returns,” said Steven Chan, an analyst at Citic Securities.
The transaction is estimated to strengthen the HSBC group’s core tier-1 capital ratio by 0.5% and the total capital ratio by approximately 1% based on September 30, 2012 ratios. The group’s core tier-1 capital ratio at September 30, 2012 was 11.7%, and the total capital ratio was 15.6%.
The transaction will be broken into two tranches. Some 256 million shares, representing about 20.8% of the stake, will be transferred by HSBC Insurance to the purchasers on Friday for a price of HK$59 a share.
The second tranche, of the remaining 976 million shares, will be transferred at the same price and is expected to complete on January 7. The second completion, which is subject to regulatory approval from the China Insurance Regulatory Commission, is being financed partly with cash and partly by a loan from the Hong Kong branch of CDB to Charoen Pokphand.
Worldwide, the London-based bank has announced 41 disposals and closures of its non-core assets since early 2011. HSBC said last month that it was in talks to sell its stake in Ping An, fuelling speculation on potential buyers.
The shares will be sold to indirect wholly owned subsidiaries of Charoen Pokphand.
