FWD Group’s IPO hits potential roadblock as US regulator asks questions about Beijing’s hold over Hong Kong companies, sources say

SEC is asking about potential risks associated with Beijing extending its authority over Hong Kong-based firms, said people familiar with the matter
FWD had hoped to raise US$2 billion to US$3 billion in its US listing

Banking & finance

Chad BrayandGeorgina Lee

Published: 1:19pm, 19 Oct 2021

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FWD Group’s initial public offering has hit a potential regulatory roadblock as the Hong Kong-based insurer backed by tycoon Richard Li Tzar-kai seeks to raise as much as US$3 billion in the United States, according to people familiar with the matter.

The insurer has yet to receive final approval from the US Securities and Exchange Commission (SEC) as the watchdog is asking about potential risks associated with the Chinese government extending its authority over Hong Kong-based firms, according to the people, who were not authorised to discuss the matter publicly.

FWD has not withdrawn its IPO, but it is unlikely the listing will be completed before the end of the year given the additional regulatory scrutiny, the people said. The company declined to comment.

If an issuer wants to start its roadshow, it must do so within 135 days of its latest financial statement cut-off date filed in its prospectus. As FWD’s latest financial statement cut-off was at the end of June, this means that the window will probably expire by the end of this month.

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Bloomberg reported the regulatory hurdles the IPO was facing earlier on Tuesday.

The insurer filed a confidential draft registration in June and a redacted prospectus last month for the flotation, which is expected to raise between US$2 billion and US$3 billion.

Assuming that the filing and disclosure have not raised major questions with the US watchdog, it would usually take at least two months after the issuer has made a public filing to the SEC to get its sign-off and launch investor roadshows, according to Jeffrey Sun, a partner at law firm Orrick in Shanghai.

Even though FWD currently only maintains a representative office in China as it awaits approval to set up a joint venture, there could be concerns from the US regulator about all companies based in mainland China and Hong Kong, the people said.

“In general, the SEC is taking a realistic approach to investor protection. The last thing they want is for the price of Chinese ADRs to tumble due to an unexpected regulatory clampdown in the issuer’s home market,” said Sun, referring to American Depositary Receipts, securities that trade on US exchanges but represent shares in a foreign company. He declined to comment on individual companies.

The listing by FWD would be the biggest US flotation ever by a Hong Kong-based insurer. It would be the largest by an insurer based in China or Hong Kong since China Life Insurance raised US$3.5 billion from its IPO in December 2003.

In September, FWD disclosed that Athene Life Re, a Bermuda reinsurer affiliated with Apollo Global Management, had agreed to purchase US$400 million of its shares as part of a private placement.

Other investors who indicated an interest in subscribing to up to US$500 million of shares in the offering included the Li Ka Shing Foundation, Hong Kong telecommunications company PCCW and PCGI Holdings, its controlling shareholder and one of Richard Li’s holding companies. Li is the younger son of Hong Kong’s richest man, Li Ka-shing.

Hong Kong billionaire Richard Li Tzar-kai attends a graduation ceremony at Shantou University in 2017. Photo: Getty Images

The FWD IPO comes during an increasingly fraught time for mainland Chinese and Hong Kong companies seeking to list overseas.

Heightened regulatory scrutiny in China and the United States has caused a number of companies to take a “wait and see” approach, with a number of firms delaying US IPOs or shifting their listings to Hong Kong as a result, according to deal makers.

Beijing unveiled a series of regulatory measures this summer following the US$4.4 billion IPO of ride-hailing giant Didi Chuxing in New York, which reportedly pushed forward with its listing before Chinese regulators had completed a data security assessment.

As part of their clampdown, Chinese watchdogs introduced new rules to review all overseas listings by firms who hold the personal data of 1 million or more Chinese people.

At the same time, the US Securities and Exchange Commission (SEC) asked Chinese firms who use shell companies – known as variable interest entities (VIEs) – to go public on American bourses to make additional disclosures about their structures and potential regulatory risks in China.

FWD listed the Chinese regulatory environment, as it relates to its expansion into the Greater Bay Area, as a potential risk factor, but not the potential for Beijing extending its influence over Hong Kong-based firms in its most recent amended prospectus.

Founded in 2013, FWD is the insurance arm of Pacific Century Group, Li’s sprawling investment group. The company offers life and medical insurance, general insurance and employee benefits, and has grown from three markets initially to 10 markets in Asia today. Southeast Asia contributed more than 40 per cent of the value of its new business last year, according to its prospectus.

FWD reported a profit of US$128 million in the first half of 2021, compared with a loss of US$267 million in the first six months of 2020, according to the prospectus. It has lost money on an annual basis for the past three years.

Morgan Stanley, Goldman Sachs, JPMorgan, HSBC Securities (USA) and CMB International Capital are the joint underwriters and joint bookrunners of the deal.

Additional reporting by Peggy Sito

This article appeared in the South China Morning Post print edition as: FWD’s share offering hits potential hurdle