Ping An stake sale hinges on regulator

More than $1.3bn in paper profits rests on a decision from China’s insurance regulator on Friday – and it is still a mystery to whom those profits belong.

HSBC’s $9.4bn sale of its stake in Ping An Insurance to Charoen Pokphand Group of Thailand is awaiting approval from the China Insurance Regulatory Commission ahead of a deadline of 11.59pm Hong Kong time on Friday.

A collapse of the sale will put pressure on the shares of Ping An, China’s biggest private insurer, as investors worry about how or when the UK-based bank’s stake will hit the market, according to analysts.

It will also leave HSBC executives red-faced over the failure of such a high-profile sale in a country where the bank has strong connections. HSBC is the biggest foreign bank in China, with more than 100 branches, and it has a near 20 per cent stake in one of the country’s biggest banks, Bank of Communications.

“I doubt it moves things much in share price terms for HSBC, but it is embarrassing,” says one analyst who follows the bank. “Obviously, they have also laid their cards on the table and said they want to sell, which leaves a big overhang of Ping An stock in the market.”

A breakdown of the sale is the number-one risk to Ping An’s stock price, at least in the short term, analysts at Jefferies said in a recent note.

CP Group has paid for almost $2bn of the shares in the first stage of the deal, but the sale of the remaining $7.44bn slug was thrown into doubt after China Development Bank changed its mind about providing finance to CP Group. The regulator has since been expected not to back the deal because of CDB’s withdrawal.

A rash of reports in the mainland press about a Hong Kong-based financier, Xiao Jianhua, being one of a number of people who were really behind the deal triggered an investigation at CDB, according to people familiar with the policy bank.

As a bank with a mandate to lend in support of official policy, there are questions over whether CDB should ever have been helping non-mainlanders reap profits from trading stakes in Chinese stocks, says one Chinese banker based in Hong Kong.

Ping An stock has risen almost HK$11.00, or 17.9 per cent, since the two-stage sale of the 15.6 per cent stake for HK$59.00 a share was announced in mid-December. CP Group has already made a $354m profit from the first tranche of shares, while the second chunk is worth $1.33bn more than what CP agreed to pay.

CP Group said in January that its subsidiaries – such as All Gain Trading and Easy Boom Developments – were the only parties involved and that it had the funds to complete the deal. HSBC and CP Group could extend their deadline beyond Friday night if the regulator makes no ruling. HSBC would not comment on its plans on Thursday. CP Group said it had no plans to withdraw its offer.

If the sale collapses, the big question is what HSBC will do with the stake. Some Hong-Kong based bankers say they are staying out of the deal because of the uncertainty about who is really behind it. “You don’t want to turn up with an alternative buyer to solve HSBC’s problem when you do not know who you might be upsetting,” says one.

However, another banker adds: “If you can find a good Chinese buyer, maybe that helps solve the problem.”

For HSBC, the sale of Ping An will reduce earnings per share by 3-4 per cent, according to analysts at JPMorgan and Morgan Stanley, but will boost its core capital ratio by 0.5 per cent.

Some bankers question whether there is another buyer capable of taking such a large chunk in one go, which means HSBC would have to sell its remaining holdings in blocks into the market. This may sound like a lot for the market to take, although Goldman Sachs managed to sell more than $14bn of stock in AIA, the Asian insurer, on behalf of AIG during 2012 – and AIA’s stock still rose 23 per cent.

Additional reporting by Gwen Robinson in Bangkok