Exclusive: deal for HSBC's Ping An stake to be rejected

Mainland regulators poised to reject offer for HSBC's holding in life insurance giant amid concerns about its funding and ownership

PUBLISHED : Wednesday, 09 January, 2013, 12:00am
UPDATED : Tuesday, 15 January, 2013, 10:42am

Mainland regulators are poised to reject a US$9.4 billion bid by a Thai conglomerate to purchase HSBC's entire stake in Ping An Insurance.

The refusal by the China Insurance Regulatory Commission (CIRC) is expected because of concerns about the funding for the bid and the identity of the real buyer. If the deal collapses, it would be a huge disappointment for HSBC.

Europe's biggest bank by assets is keen to raise cash to boost its capital base and to pay a US$1.92 billion settlement agreed upon last month to end a US money-laundering probe.

Sources close to the CIRC told the South China Morning Post yesterday that senior officials were not convinced Thailand's Charoen Pokphand Group (CP) could afford to buy HSBC's 15.6 per cent holding in Ping An Insurance - China's No2 life insurer - mostly with its own money. HSBC and Ping An declined to comment and CP was not available for comment.

The CIRC is also increasingly concerned about whether CP would be the real buyer and ultimate holder of the Ping An stake, said the sources, who declined to be identified owing to the sensitive nature of the matter.

"If CP is serious about the deal, it should do more to explain where and how it will get the money and who else, if not China Development Bank (CDB), is helping it make the deal," one of the sources said. "Otherwise, just forget it."

The Post reported yesterday that CDB, a major state-owned bank, was reconsidering its decision to back the deal, a signal CP's bid might be in trouble. When HSBC first said it planned to allow CP to buy its Ping An stake, CDB agreed to provide loans to help CP close the deal.

Hong Kong-listed shares of Ping An tumbled 4 per cent to HK$68.15 yesterday. Its Shanghai-listed shares fell 3.7 per cent to 45.46 yuan (HK$56). HSBC fell 0.36 per cent to HK$82.75.

The deal's turning point came last month when Xiao Jianhua , a secretive mainland businessman well connected to senior officials and their offspring, was caught in the media spotlight. Xiao, believed to be the buyer behind the scenes, quietly borrowed money from small local banks to fund CP's first-stage purchase of the Ping An stake, held by HSBC for over a decade.

The deadline for the CIRC's approval is February 1 and CP must pay the rest of the money quickly in a second-stage transaction to close the deal.

Political connections have long been a key factor in dealmaking in China, but new Communist Party leader Xi Jinping has pledged to root out corruption.

The sources close to the CIRC said Chen Wenhui , a vice-chairman of the regulator and the key man reviewing the deal, recently told associates at a private occasion he was "not very happy with how the game is played", referring to suspicions arising from the stake sale.

One source said: "I don't think [Chen] belongs to a specific political camp. This may be a good reason for him to stay neutral and fair so he can win trust from the new big bosses, like Xi."

Additional reporting by Ray Chan, Jeanny Yu