PICC goes to market with a jumbo deal
The dominant player in China's non-life insurance sector has captured investors' attention with its strong growth in premiums
The Hong Kong initial public offering planned by People's Insurance Company of China (PICC) could raise between US$3 billion and US$4 billion and become the biggest deal in the Asia-Pacific region this year.
Founded in 1949, PICC was one of the first state-owned insurers in the rapidly expanding Chinese market and ranks as the country's largest non-life insurer, with a significant presence in the property and casualty sector.
According to one person familiar with the deal, robust growth in net premiums and nationwide synergies between the property and casualty businesses and life and health units are the two key selling points for the long-awaited listing.
"As a dominant player in the non-life insurer market, PICC has successfully captured investors' attention but the valuations and the projected growth rate in premiums remain the biggest hurdles," said a Hong Kong-based fund manager who attended the pre-marketing event but did not want to be identified.
The fund manager added that PICC's over-dependence on the domestic equity market is a drag on its overall profitability.
The six Hong Kong-listed insurers are trading at an average price-to-embedded value of 1.4 times based on figures from the latest fiscal year.
Embedded value, a common measure used in the insurance industry, is the sum of the adjusted net asset value and the present value of future profits of a firm.
For the first six months, PICC's net earned premiums - pro-rated amount of paid-in-advance premiums that are taken to belong to the insurer - have increased by 7.4 per cent to 119.3 billion yuan (HK$147.3 billion) from a year earlier, while net profit has risen by 19 per cent to 7.14 billion yuan.
PICC commanded 36 per cent of China's non-life premiums in the first half of this year, larger than the combined value of the second to the fourth players, according to the IPO prospectus.
To make the flotation a success, companies generally try to have big cornerstone investors like state-backed insurers and sovereign wealth funds, said two bankers involved in the deal.
The combined subscriptions of cornerstone investors should cover more than 40 per cent of the offering, they said.
Two other sources said American International Group, French reinsurer Scor and China Life are interested in buying sizeable stakes as cornerstone investors.
"It would be a surprise if PICC shares are not pitched to cash-rich global and domestic insurers," said a market insider.
The firm is planning to sell about 16 per cent of its enlarged share capital, which translates into a market capitalisation of about US$21 billion.
Apart from substantial backing of heavyweight investors, a "jumbo deal" like PICC will follow the success of initial public offerings of China Life and Ping An if the insurer is willing to offer attractive valuations in this tough market, say market watchers.
The Beijing-based company will begin the official roadshow on Thursday and is scheduled to price the IPO on November 29, the people said. PICC shares could start trading in Hong Kong on December 7, although the schedule is still tentative.
The insurer originally planned a dual listing in Shanghai and Hong Kong to raise up to US$6 billion but the China Securities Regulatory Commission decided to put on hold the Shanghai float.
CICC, Credit Suisse, Goldman Sachs, and HSBC are the sponsors for the PICC deal while 14 other banks are underwriting it.