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Kandy Wong

The shares of Ping An Insurance (Group) and Shenzhen Development Bank were suspended from trading yesterday on speculation the insurer could gain a controlling stake in the lender and achieve its goal of becoming a financial conglomerate.
Analysts said SDB's alliance with Ping An would  boost its equity base at a time when United States private equity firm TPG Capital, the lender's single largest shareholder, was looking to sell down its 17 per cent stake. 
Details remained sketchy over how the deal would be structured although some said it would include a share swap, an additional issue of SDB shares to Ping An or a mixture of both. Ping An already owns 4.86 per cent of SDB.
'I haven't heard  any details about the talks, but clearly the move was initiated to prepare for the seemingly inevitable sell-down by TPG next year,' said a source  at SDB.
TPG's Newbridge Capital fund bought 17.89 per cent of the bank in 2004 for US$155 million as a financial, rather than long-term, strategic stakeholder.
SDB closed at 20 yuan (HK$22.68) in Shenzhen on Friday. 
Ping An's A shares, after five successive days of gains, closed at 45.10 yuan  while its H shares finished at HK$59.05.
A spokesman for SDB  yesterday said the company would issue a  notice before Saturday and declined to comment further.  
A statement by Ping An said the group had suspended its shares because it was discussing a significant transaction.
BNP Paribas said in a note to clients: 'Should the deal transpire, it can help Ping An ... move to the three pillar financial conglomerate model, namely insurance, banking and assets.'   
It estimated a 6.7 billion yuan deal was in the offing if Ping An took over all the tradable shares offloaded by TPG in the Shenzhen bank.
Although Ping An already owned Ping An Bank, it was no match for SDB in terms of market depth, said Qi Yifeng, an analyst with research firm CEB Monitor.
'Ping An Bank has outlets in seven cities in the country while SDB's network covers up to 20 cities,' said Mr Qi. 'They are not on the same scale in any terms.'
SDB had  474.4 billion yuan of assets  as of the end of last year while Ping An Bank was valued at about 140 billion yuan.
Richard Jackson, the head of Ping An's banking unit, said in March that the group would consider acquisitions to boost its distribution network and scale.
A China International Capital Corp research note suggested that Ping An would 'go for a stock swap' to exert its control of SDB because of 'cost efficiency'.
But a Shanghai-based fund manager said an additional share placement was more likely as the lender  needed to boost its capital base.
SDB's capital adequacy ratio stood at 8.53 per cent at the end of March, lower than the 10 per cent regulatory requirement for medium-sized listed lenders. 
Chinese regulators have recently stepped away from their previous caution  about insurers buying into banks. Only China Life Insurance and Ping An have   invested in banks, following special government permission.
Cashing out 
The amount it will cost Ping An to take over TPG's stake in SDB, in yuan: 6.7b



Ping An eyes TPG's stake in Shenzhen bank