PICC Group has raised HK$24 billion ($3.1 billion) from Hong Kong’s biggest initial public offering this year after fixing the price slightly above the bottom of the range.
The final price of HK$3.48 per share will give the Chinese insurer a market capitalisation of about $18.6 billion. It also values PICC’s fast-growing life and health business at about 1.3 times its 2012 embedded value on a pre-money basis, assuming that the company’s Hong Kong-listed property and casualty division is valued at market price.
Investors have argued that the valuation is expensive — it is slightly below the average 1.4 times embedded valued for the other major Chinese life insurance companies listed in Hong Kong, but significantly richer than New China Life Insurance, which trades at 1.04 times and is viewed to have the closest business mix to that of PICC.
PICC, or the People’s Insurance Company (Group) of China as the state-owned entity is formally known, is the dominant non-life insurance company in China through 69%-owned PICC Property & Casualty, the Hong Kong-listed unit, and the fifth largest life insurer.
However, the deal received strong support from fellow state-owned Chinese enterprises and Chinese individuals and that helped it get across the line. Whether that will also be enough to support the share price in the aftermarket remains to be seen.
For sure, the deal did attract some international investors, notably a number of international insurance companies that formed part of the $1.82 billion cornerstone tranche. These include American International Group (AIG), which is buying $500 million worth of shares and has also set up a nationwide joint venture with PICC to distribute insurance products through a specialised agency force and to engage in re-insurance. This agreement, although not yet binding, was viewed as a major positive for the IPO even though AIG does already own a 9.9% stake in PICC P&C and hence is not new to the group.
To further show its support for the company, AIG has committed not to sell more than 25% of its PICC shares in the first five years. The US insurer is also subject to the same general six-month lock-up as the other cornerstones.
Other international cornerstones include French reinsurer Scor, Japan’s Tokio Marine and Russia’s largest privately owned insurance company, Ingosstrakh. On China Life Insurance, Sinosure and China Reinsurnace are also present. On November 28, the day before the deal closed, PICC also announced in a supplementary prospectus that China Life Insurance would increase its cornerstone investment to $150 million from $100 million, boosting the total cornerstone tranche to $1.82 billion from $1.77 billion.
In addition to the 17 cornerstones, a total of 180 institutional investors submitted orders, but according to one source no more than 30 of those were what can be referred to as international accounts.
Instead, the most positive demand signal came from retail investors, which submitted orders worth more than HK$24 billion ($3.1 billion). This is more than for any other Hong Kong IPO or new listing this year and left the retail portion of the deal about 17.5 times covered, triggering a clawback that increase the retail tranche to 7.5% from 5%. The interest is particularly notable since the retail portion of many other Hong Kong IPOs this year has been significantly undersubscribed, including deals where the retail tranche has been well below $50 million.
The portion left over for institutional investors after excluding the cornerstone tranche and about $500 million worth of shares likely to go to Hong Kong retail investors, Japan retail investors through the public offering without listing (Powl) and other private banking-type accounts will be about $1.1 billion to $1.2 billion (if you include the 15% greenshoe). That portion was about two times covered, according to one source.
PICC offered 6.9 billion H-shares, or 16.7% of its enlarged share capital. As mentioned, there is also a 15% greenshoe that could increase the H-share offering to 18.7% of the share capital and boost the total proceeds to $3.6 billion.
That could propel it ahead of Malaysian palm oil, rubber and sugar producer Felda Global Ventures, which raised just under $3.3 billion, to become the largest new listing in Asia and the fourth largest in the world this year. The top three spots in the global rankings are held by Facebook, Japan Airlines and Santander Mexico, which raised $16 billion, $8.5 billion and $4.1 billion respectively, Dealogic data show.
The PICC shares were marketed at a price between HK$3.42 and HK$4.03. The final price of HK$3.48 is at a 9.7% premium to the price of Rmb2.57 per share that China’s National Social Security Fund (NSSF) paid when it acquired an 11.3% stake in PICC Group in June last year.
PICC P&C is the dominating non-life insurer in China with a 35% market share, based on premiums. However, looking ahead, the key growth is expected to come from the life insurance business, which was set up as recently as 2005 but has already captured a market share of 7.4%, according to one research report citing data up until the end of September.
This business is expected to have huge growth potential as the entire life insurance market in China continues to expand and as the company starts to focus more on multi-premium products, which have higher margins. PICC is also expected to shift more towards agency selling from today’s bank assurance model and should continue to benefit from increased cross-selling with PICC P&C, which has 74.5 million individual and institutional customers.
As noted in earlier stories, PICC set a dubious record of having the most bookrunners on an IPO ever with 17 banks sharing the honour. However, the deal was primarily led by the five global coordinators: CICC, Credit Suisse, Deutsche Bank, Goldman Sachs and HSBC.
In addition to those five, the remaining bookrunners were ABC International, Bank of America Merrill Lynch, BOC International, CCB International, Citi, Daiwa, Essence, Haitong International, ICBC International, J.P. Morgan, Morgan Stanley, UBS.
The stock will start trading on Friday (December 7).