China Life buys Visa IPO shares for US$300m

PUBLISHED : Tuesday, 25 March, 2008, 12:00am
UPDATED : Tuesday, 25 March, 2008, 12:00am

China Life Insurance has invested US$300 million in Visa's initial public offering, making it the first mainland insurer to make a pre-listing investment in a multinational company.

Such a transaction is increasingly welcomed in the United States where major Wall Street financial houses are struggling under billions of dollars' worth of losses related to the unfolding subprime lending crisis.

The top mainland insurer said the purchase was a purely financial investment, which does not preclude its plans for further acquisitions in the US and Europe.

'We're not looking at any strategic link-up with Visa at the moment,' Qu Jiahao, an assistant general manager of China Life's investment management division, told a news service.

'We're also considering other [initial public offering] investments overseas, particularly in financial institutions since that's our home turf.'

No other China Life officials were available for comment.

'It's only in these rocky times that China Life could take up shares in major US financial firms,' said Lai Zhengjian, the general manager of Fortune Life Investment Management, a Shanghai-based private equity company.

'There were instances in the past when the US rejected Chinese companies' offers on the grounds that American security and sovereignty would be at threat,' Mr Lai said.

The administration of President George Bush is known to be wary of acquisitions by cash-flush mainland companies and sovereign wealth funds, which US lawmakers fear would snap up strategic assets in a country undergoing a credit crunch.

Shares of Visa rose 28.41 per cent on their debut on the New York Stock Exchange on Wednesday, giving the insurer a paper gain of about US$84 million on the first day. The stock was down 2.81 per cent at US$62.54 at midday yesterday.

At the offer price of US$44 per share, China Life's purchase was less than 2 per cent of the company.

The Visa share sale raised US$17.8 billion, making it the biggest new offering in the US and the world's second-biggest after the Industrial and Commercial Bank of China's US$22 billion listing in 2006.

Analysts cautioned that the investment might sour, given the chequered performance record of foreign acquisitions by mainland financial institutions.

Shares of Blackstone Group, the world's largest private equity firm, have fallen 48 per cent since a mainland sovereign fund bought into it in June last year. The share price of Barclays also has fallen 40 per cent following China Development Bank's investment in July.

'Compared with Ping An, China Life's investment strategy is more obscure,' UOB Kay Hian analyst Sheng Nan said. 'The insurer is flush with cash but until now we still haven't seen any big overseas move on its part to diversify its portfolio.'

China Life's investment in Visa follows Ping An Insurance (Group)'s agreement to buy half of Fortis Group's asset management business, announced last week.

The country's second-largest insurer had signed a memorandum of understanding with the Dutch-Belgian financial group to acquire a 50 per cent stake in Fortis Investments for HK$26.34 billion.