HSBC Looking to Sell Chinese Insurer Ping An

on Nov 19, 2012

As part of its strategy to lose non-core businesses and increase profitability, HSBC announced it is in talks to sell its $9.3 billion (£5.9 billion) stake in the Chinese insurer Ping An.

**HSBC and Ping An**
Europe’s biggest bank first acquired a stake in the Chinese company ten years ago – back then it bought 10.1 percent of the total shares for around $600 million (£377 million). In 2005, three years later, the bank bought an additional 9.8 percent of the stock for $1.1 billion (£691 million). Its 19.9 percent stake was later watered down to 15.6 percent after it declined to subscribe to a Ping An rights issue in 2010.

“HSBC has from time to time received approaches regarding its shareholding and confirms
that it is in discussions which may or may not lead to the sale of the shares,” was the latest comment the bank gave on Monday regarding a possible sale of its asset. The statement came after the Hong Kong Economic Journal, a respected Chinese language newspaper, reported that one of the possible buyers for the stake is Thai billionaire Dhanin Chearavanont, who owns the unlisted Charoen Pokphand Group.

“This makes sense for HSBC because it’s been disposing of so many of its non-core businesses,” opined Ivan Li, an analyst at Maybank-Kim Eng in Hong Kong, as quoted by the Telegraph.
Jim Antos, analyst at Mizuho Securities, estimated that if the bank finds a buyer, it could make a profit of $6.5 billion (£4.08 billion) on its Ping An stake and boost its Tier 1 capital ratio, the comparison between the bank’s core equity capital and total risk-weighted assets, from 13.1 percent to 13.6 percent. Basel III, a set of new banking regulations, requires from lenders higher capital buffers to absorb potential financial stress.

!m[The Bank Sticks to Its Strategy of Shedding Non-Core Assets to Boost Profitability](/uploads/story/843/thumbs/pic1_inline.png)According to Mr Antos the hardest part for HSBC will be finding a willing buyer with a deep pocket as the bank will not be able to sell such a large amount of shares to the general public on the stock market. Selling a stake in Ping An, the world’s second-largest life insurer by market capitalization, would also require regulatory approval from Beijing, which narrows the list of potential buyers as Chinese authorities typically allow only financial groups to take stakes in the country’s major insurers or banks.

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Shares in Ping An dropped by 6.33 percent to a daily low of 34.89 Chinese Yuan before recuperating slightly and closing at 36.42 Yuan or 1.81 percent lower compared to their Friday closing price. As of 09.14 GMT shares in HSBC have risen by 1.81 percent to £6.0660.
**Shedding Non-core Assets**
HSBC also owns a 19 percent stake in China’s $9.78 billion (£6.14 billion) Bank of Communications (BoCo), the fifth largest bank in the country. A while ago the British bank expressed the desire to increase its share holdings but that would be unlikely as foreign investors are capped at 20 percent stakes in domestic banks. According to Mr Li, the announcement of a possible Ping An sale has left many investors wondering whether the bank might also be considering disposing of its BoCo shares.
Since CEO Stuart Gulliver’s plan for the bank to exit non-core businesses and boost profitability was set in motion, HSBC has offloaded from its balance sheet over $55 billion (£34.5 billion) in risk-weighted assets. In 2012, HSBC sold its general insurance business to QBE Insurance Group and French Insurer AXA. Reuters also reported the bank is getting closer to selling its Vietnamese insurer Bao Viet
Holdings. In the year-to-date HSBC has made about $4 billion (£2.51 billion) on asset sales and has cut the equivalent of 22,000 full-time positions. As of the beginning of October, the bank had 267,000 staff.

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