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SCMP Reporter

Fortis buys Pacific Century Insurance  in a bid to cement foothold in region

Pacific Century Regional Developments has agreed to sell its controlling stake in Pacific Century Insurance Holdings (PCI) to Fortis Insurance International in a deal worth HK$3.53 billion.

This comes less than three months after the Singapore-listed investment company, controlled by Richard Li Tzar-kai, failed to gain shareholder approval to offload its only other key holding, a controlling stake in PCCW.

The insurance arm of the Belgian and Dutch-based Fortis Group said yesterday it would  acquire the 50.48 per cent stake in the Hong Kong insurer from PCRD and other sellers for HK$8.18  a share in cash in order to cement a foothold  in the region.

Fortis also will make an unconditional mandatory cash offer to PCI's minority shareholders and said it would privatise the insurer  if it gained 90 per cent ownership of the company.

The purchase price  represents a 58.22 per cent premium to PCI's closing price of HK$5.17 on the last full trading day on February 23. The deal values  the insurer at HK$7 billion compared with its market capitalisation of  HK$4.7 billion, based on its closing price on Monday.

Morgan Stanley is Fortis' adviser for the deal.

Reports of the interest in PCI sent its shares surging  11 per cent to HK$5.78 on Monday, before they were suspended from trading pending the transaction announcement.  Trading resumes today.

Sources said the  firm might  distribute a special dividend to shareholders if the deal was completed.

The transaction price represented 1.38 times PCI's 2006 embedded value - a common method to access an  insurer's potential for growth - and 21.7 times 2006 earnings.

PCI on Wednesday said  net profit rose almost eight times last year to HK$322.4 million on revenue up 9.1 per cent at HK$1.99 billion.

'The valuation represents the  healthy growth potential [of PCI], comparing the embedded value of PCI in 2006 against 2005. [The price] is fair  to both parties,' said Catherine Leung Ka-cheung, the head of Hong Kong investment banking of JP Morgan, which advised PCRD.

Fortis Insurance has been building its Asia platform since 2001,  the year it also acquired a 24.9 per cent stake in the mainland-based Taiping Life from China Insurance Group for HK$686 million.

In 2004, Fortis merged the retail business of its Fortis Bank Asia Hong Kong with ICBC (Asia)   to focus on corporate and private banking.

'We do want to use the operation of PCI in Hong Kong as our regional and operational management hub and position ourselves for further expansion,'  Dennis  Ziengs, Asia chief executive of Fortis Insurance, said yesterday.

After the transaction, Fortis will be ranked seventh in the Hong Kong insurance market with  a 4.1 per cent market share.

After the deal is completed, PCI chairman Francis Yuen Tin-fan  will stay with the firm  for at least a year.

PCRD is expected to book a one-time gain of HK$2.7 billion from the disposal.

In November last year,  a consortium, including Richard Li's father, Li Ka-shing, made an offer for PCCW, which was rejected by PCRD's minority shareholders.

Richard Li was not allowed to vote on the deal since it involved his father and was deemed a connected transaction by Singapore regulators. In the insurance deal, he should be allowed to vote, making approval a near certainty.



Richard Li sells insurer in HK$3.5b  cash deal