Ping An Insurance

Charoen Pokphand hopes rural finance can swing Ping An deal

Giant food group believes its expertise in rural finance will sway regulator into letting it buy US$9.4b stake in insurance firm from HSBC

PUBLISHED : Tuesday, 11 December, 2012, 2:41am
UPDATED : Tuesday, 11 December, 2012, 9:56am

Charoen Pokphand Group, the Thailand-based food exporter which plans to buy HSBC’s stake in the mainland insurance giant Ping An Insurance, will bank on its expertise in rural finance to win Beijing’s approval for the deal, people familiar with the situation said.

HSBC’s announcement last week that it would sell its entire 15.6 per cent stake in Ping An to CP Group for US$9.4 billion surprised many market observers.

CP Group secured funding from China Development Bank, which the central government controls directly. The firm has limited experience in finance and insurance.

China refused in the past to allow foreign non-financial companies a major stake in its powerful financial institutions.

But CP Group, controlled by a Thai-Chinese family well connected in Beijing, is confident the China Insurance Regulatory Commission (CIRC) will approve the deal.

“Charoen Pokphand Group is pleased to have the opportunity to become a major shareholder in this company and hopes to explore the opportunity to create and develop new business ventures with Ping An in the future,” CP Group said. It confirmed the deal is awaiting approval from the regulator.

A person close to the deal said CP Group would try to convince the regulatory commission that it can work closely with Ping An to develop its rural financing business, such as through village banks, to help the mainland modernise its agricultural sector and close the wealth gap – something the soon-to-retire premier Wen Jiabao  has repeatedly supported.

“I believe Beijing will approve the deal eventually,” a person familiar with how the regulator operates said. “HSBC understands Chinese policies very well. The CIRC would have got a tip-off about who the buyer is and then given HSBC a hint that the deal could go ahead, before HSBC announced it to the whole world.”

“No matter whether you have Beijing’s blessing or not, on the record you need to give a reason why Beijing should support the deal, and I think CP’s agricultural background will be something it will use to lobby various parties,” the source said.

But many investment bankers remain unconvinced, even though CP Group’s chairman, Dhanin Chearavanont, has close personal ties to some Chinese leaders. One Hong Kong-based investment banker said: “Some question the synergies between an agricultural food maker and a financial conglomerate: how can this kind of tie-up work and add value to each party?

“Ping An has insurance, banking, asset management, trust and securities businesses, and CP’s knowledge and experience about the financial industry is relatively limited. When you try to seek approval from the CIRC, you have to convince officials there that the deal is not just about money, because Chinese officials now care more about how a foreign investor can add value to its Chinese partner, not just bring in capital.”

Shenzhen-based Ping An is China’s second-largest life insurer and has grown into a full-range financial services provider. Earlier this year, Ping An acquired Shenzhen Development Bank and renamed it Ping An Bank, and the group is emerging as a leader of the banking industry.

CP Group, on the other hand, is known for its poultry operations. It is already a big investor on the mainland but has focused so far on three main businesses, agriculture, retail and property.