What the failed HK$7.1 billion bid for Hong Kong Life says about capital flows in China

PUBLISHED : Tuesday, 02 October, 2018, 5:16pm
UPDATED : Tuesday, 02 October, 2018, 11:24pm

The mainland entity behind a proposed HK$7.1 billion bid for Hong Kong Life has missed Sunday’s deadline to proceed with the deal, indicating the push by mainland groups to acquire local life insurance companies has drawn to a close.

The five local major shareholders of Hong Kong Life have terminated the deal “in accordance with the terms of the share sale agreement on the basis that the conditions have not been satisfied by the long stop date [on September 30],” according to separate announcements by Asia Financial Holding and Chong Hing Bank on the Hong Kong stock exchange. The other shareholders are OCBC Wing Hang Bank, Shanghai Commercial Bank and Wing Lung Bank.

“In accordance with the terms of the share sale agreement, an aggregate deposit of HK$710 million (US$90.6 million) paid by the purchaser to the sellers has been forfeited in favour of the sellers,” the announcement said.

Founded in 2001, Hong Kong Life is the 10th largest life insurer in the city and the second largest to be targeted in last year’s merger and acquisition wave.

A consortium known as First Origin was behind the acquisition, first disclosed in March 2017.

UCF Capital, a financial group based in Hong Kong and Beijing, is among the groups making up the bidding consortium, according to sources.

In Hong Kong midday trading on Tuesday, Asia Financial fell 2.3 per cent to HK$4.75 while Chong Hing Bank fell by 0.6 per cent to HK$14.04.

“The failure of the takeover of Hong Kong Life may reflect that mainland buyers have difficulty transferring money out of the country as the authorities have tightened control of capital outflows over the past year,” said Clement Chan Kam-wing, managing director of accounting firm BDO.

“The ongoing US and China trade war would affect sentiment towards mergers and acquisitions. The trade war is expected to affect economic development in the mainland and Hong Kong. This would lead mainland companies to rethink their overseas expansion plans, including buying insurance companies in Hong Kong. We are likely to see a slowdown of M&A activity in Hong Kong’s insurance sector.”

The largest insurance deals in Hong Kong over the past five years all involved buyers from the mainland, according to data from Refinitiv. So far this year no such entities have announced takeover intentions relating to Hong Kong insurers.

Among Hong Kong insurance deals in recent years, the largest was by Yunfeng Financial Group – backed by Alibaba Group Holding's founder, Jack Ma Yun – which agreed to buy MassMutual Asia, the Asian unit of US-based Massachusetts Mutual Life Insurance for US$1.64 billion in 2017, according to Refinitiv data.

The second largest was in August 2015, when JD Capital, also known as Beijing Tongchuang Jiuding Investment Management, agreed to pay US$1.4 billion to acquire Ageas, which has since been renamed as FTLife Insurance.

The third largest was the US$1 billion sale of Dah Sing Life Assurance and related companies to Fujian Thai Hot Investment, completed in June 2017, one year after it was announced.

In Hong Kong, there have been two insurance takeovers worth a combined US$7.6 million as of October 2.