Ping An turns sights back home with purchase of stake in SDB

PUBLISHED : Saturday, 04 July, 2009, 12:00am
UPDATED : Saturday, 04 July, 2009, 12:00am

No one would dispute that mainland insurer Ping An - meaning 'safe and sound' in Chinese - has a name made for its business.

It served successfully as the watchword of the country's second-largest insurer in its rise over the past two decades - until last year.

As the global financial system unravelled last autumn, wiping out US$3.3 billion of Ping An Insurance (Group)'s investment last year in the Belgian financial conglomerate Fortis, the soundness of the company's money-making ability was thrown into doubt.

Last month, Ping An announced plans to take a 30 per cent stake in Shenzhen Development Bank for as much as 22.13 billion yuan (HK$25.1 billion). In addition to subscribing for new shares in the bank, Ping An will buy out the 16.76 per cent stake held by TPG for 11.45 billion yuan, delivering the United States private equity fund an estimated gain of 9.22 billion yuan or 313 per cent. TPG has been allowed to exit before its formal lock-up period expires next year.

Shenzhen-based Ping An's move raised eyebrows about not only the deal's value but also the broader commercial obligations of foreign investors in mainland firms.

Without directly addressing the question, Ping An president Louis Cheung Chi-yan stressed the deal was negotiated under existing regulations. 'I can't think of anything that was beyond existing rules,' he said. 'I'm unable to comment on external speculation ... I can only stress we have operated totally based on existing rules.'

Defending the value of the acquisition, Mr Cheung said Shenzhen Development Bank, which has a national banking licence, would help expand the coverage of Ping An's banking business in the country to at least 70 per cent from less than 20 per cent.

Because both firms share a common history of capitalising on economic reforms in Shenzhen and an 'entrepreneurial spirit', he said the difference in corporate culture would be minimal.

But Ping An's officials have failed to provide a clear indication of how they would integrate SDB with its own banking unit, Ping An Bank. That has resulted in mixed views from analysts about where the transaction would lead the group.

A JP Morgan report released shortly after the deal was announced said there was 'very limited synergy' between the two firms and that it was 'almost impossible for any cost synergy without a full integration.'

Goldman Sachs described the 30 per cent stake purchase as strategically positive in the long term. It said a key determinant of market perception in the 'near term' hinges on the return on financial investment of SDB.

The SDB purchase underscored Ping An's focus on domestic expansion after an expensive lesson from the disastrous Fortis investment.

'Fortis is a lesson,' Mr Cheung said. 'That's why I say now we have to observe and reflect,' adding that the initial rationale of acquiring expertise through foreign expansion remained unchanged.

But when asked if Ping An would venture overseas again if the opportunity was right, Mr Cheung said the firm would instead work on strengthening its Hong Kong wealth management unit.

How sound the SDB investment appears to investors remains to be seen. Ping An's Hong Kong-traded shares rose to the year's high of HK$59.05 on June 12. They have fallen about 4.06 per cent since to yesterday's close of HK$56.65.