Charlotte So
Sep 03, 2010
Moving closer to its goal of becoming a financial conglomerate, Ping An Insurance (Group) (SEHK: 2318) has finalised the plan to obtain a controlling stake in Shenzhen Development Bank (SDB) in a 29.1 billion yuan (HK$33.2 billion) deal, which will help it strengthen its banking network on the mainland.
The deal, which will increase Ping An's stake in SDB to 52 per cent from 29.9 per cent, is seen as an inexpensive way for it to gain control of the bank, which is more profitable than its own banking arm, Ping An Bank. It would also help avoid competition between the two banks, as they would be merged within a year, Ping An Insurance management said yesterday.
"After merging with Ping An Bank, SDB will become a medium-sized commercial bank on the mainland," Louis Cheung Chi-yan, general manager of Ping An Insurance, said yesterday. The deal has been approved by the China Securities Regulatory Commission and is pending approval by SDB's board and the shareholders of Ping An Insurance and Ping An Bank.
"In the long run, we would like to strike a balance between the contributions from our insurance and non-insurance businesses," Cheung said.
The merger enabled the group to use the nationwide banking network and sell insurance products to bank customers, the management said.
The insurer agreed to pay 2.69 billion yuan in cash and a 90.75 per cent stake in Ping An Bank in exchange for 1.639 billion new shares in Shenzhen-listed SDB.
The deal values the Shenzhen lender at 1.9 times its 2010 book value, in line with market estimates.
Shares of Ping An Insurance, suspended from trading for two months, yesterday rose as much as 5 per cent before closing at HK$66.10, up 2.72 per cent.
After the merger, SDB will account for at least half of Ping An's total assets.
"We believe this transaction should ease some investor concerns on potential capital-raising needs for Ping An," a Morgan Stanley report yesterday said.
A report by Bank of America Merrill Lynch also suggested SDB's core capital adequacy ratio would be around 7.9 per cent after the asset restructuring. It would only need to raise 6 billion yuan in capital should it need to increase the ratio to 9 per cent, while Ping An would need to raise about 3 billion yuan in capital to achieve that target.
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