State firms line up to back PICC listing

Mainland insurer's share offering is receiving substantial support from state firms, suggesting Beijing has linked it to political considerations

PUBLISHED : Thursday, 29 November, 2012, 12:00am
UPDATED : Thursday, 29 November, 2012, 4:49am

Beijing is throwing its financial muscle behind the listing of the People's Insurance Company (Group) of China (PICC), which has received record buy orders for shares from state-controlled firms.

Despite analysts noting indicative valuations are not attractive, PICC is receiving an unusually large amount of support from state-controlled companies, including insurer China Life and PetroChina, the country's largest oil producer, which have agreed to acquire at least US$150 million worth of shares as anchor investors, according to two people familiar with the plan.

"Before PICC officially kicked off the listing plan, senior officials at the Ministry of Finance had encouraged the top management executives of the state-run firms to support the long-awaited PICC flotation in exchange for tax incentives and rebates," said two people with direct knowledge about the transaction. The significant involvement of cornerstone investors with a state background suggests the deal is being linked with political and strategic decisions, they said.

"AIG, the biggest cornerstone investor which is buying US$500 million worth of shares in PICC, is believed to have gained better access to the highly regulated financial industry in China," said an insurance analyst, adding that the key to the deal between AIG and PICC is whether the American counterpart can obtain a full-service licence.

AIA, the pan-Asian life insurance unit of AIG, is the only foreign company that has a full licence in China.

According to the sources, Ping An Insurance, the mainland's No 2 life insurer, also agreed to buy US$100 million of shares as an anchor investor, following the line-up of 17 cornerstone investors who account for nearly half of the US$3.6 billion PICC share sale. Some state-backed banks and sovereign wealth funds are part of the anchor pool, but they declined to give specific names because the deal is private.

It is believed that the listed shares of PICC will be priced at the bottom of the range between HK$3.42 to HK$4.03 per share, as investors express caution about its growth strategy in the life business. The offering is set to be priced tomorrow and begin trading on December 7.

Joining the latest listing rush, Sinopec Engineering, a unit of China Petrochemical Corp, or Sinopec, the country's largest oil refiner, is expected to raise as much as US$1.5 billion in a Hong Kong listing in the second quarter of next year. Market sources confirmed that "the deal remained in an infancy stage" and the listing is undergoing a due diligence process.

AAG Energy, a Beijing-based extractor of coal bed methane, began its pre-marketing campaign yesterday in a bid to raise as much as US$200 million in a Hong Kong listing. Barclays and JP Morgan are the sponsors for the deal.