PICC P&C rights issue

PICC Property and Casualty plans $783 million rights issue

China's biggest non-life insurer will need to compete for investor interest with New China Life Insurance.

PICC Property and Casualty (PICC P&C), China’s biggest non-life insurer, is joining the year-end rush to the equity market with plans for a Rmb5 billion ($783 million) rights issue in Hong Kong and the mainland to meet capital requirements.

The company, which is a subsidiary of People’s Insurance Company of China, known as PICC, will also be competing for investors with New China Life Insurance, which is currently in the market for a $2.3 billion dual listing in Hong Kong and Shanghai.

Some 69% of the capital raising, or about Rmb3.45 billion, will come from the sale of domestic shares, while the remaining 31%, or Rmb1.55 billion, will be raised through the sale of Hong Kong-listed shares, according to a statement to Hong Kong’s stock exchange.

PICC P&C estimates the net proceeds from the fundraising will be around Rmb4.96 billion and said in a statement yesterday that it will use the money to “strengthen the capital base of the company and to improve its solvency margin”.

With a margin of 159% at the end of June this year, according to an interim report, PICC P&C is close to the authority’s required solvency ratio of at least 150%.

The insurer plans to offer 345.59 billion H-shares on the basis of one rights share for every 10 existing H-shares at HK$5.50 (70 US cents) each, and 768.58 million domestic shares on the basis of one rights share for every 10 existing domestic shares at Rmb4.49 each. The two prices are the same after adjusting for exchange rates.

The offering, which will hit the market next month, comprises 1.1 billion shares and accounts for 10% of the total shares issued, as at the date of the announcement. The H-share offering price represents a 47% discount compared to the closing price of HK$10.4 before the announcement.

Global insurance firm American International Group has agreed to buy enough shares to maintain its stake in the company at 9.9%.

Shareholders at PICC P&C approved the rights issue “by way of special resolution” in a general meeting in June this year and no further approval from the shareholders is needed, the company said.

China Insurance Regulatory Commission and China Securities Regulatory Commission have also given a green light to the share sale.

CICC, Goldman Sachs and HSBC are joint bookrunners of the deal.

The announcement of the rights issue triggered a sell-off in PICC P&C’s Hong Kong-listed shares yesterday. The stock fell 2.5% to end at HK$10.14, which is still 45% higher than the offering price of HK$5.5.

Hong Kong-listed shares in PICC P&C have fallen 11.8% year-to-date in 2011, though the stock has rallied 30% during the past two months from a low of HK$7.8 on October 4.

PICC P&C was established in 2002 from the former property and casualty insurance division of PICC.

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