HSBC to Sell Ping An Stake for $9.39 Billion

By Fiona Law in Hong Kong and Oranan Paweewun in Bangkok

A Thai billionaire whose fortune was built on frozen chickens has swooped in to buy HSBC Holdings' stake in one of China's biggest life insurers for $9.39 billion.

Agribusiness titan Charoen Pokphand, backed by Thai tycoon Dhanin Chearavanont, plans to buy HSBC's 15.57% stake in Ping An Insurance (Group) Co. of China Ltd., HSBC said Wednesday. It would be the biggest Chinese acquisition to date by a Thai company. Chaoren Pokphand was one of the first foreign agribusiness companies to invest in China in the late 1970s, and now produces more than a quarter of the country's poultry exports.

HSBC said last month that it was in talks to sell the stake to an unnamed third party. The coming Basel III capital rules will make holding stakes in financial institutions more onerous. In line with the bank's strategy, the capital raised from the sale is likely to be reinvested into China and Asia.

While Ping An is privately owned, Mr. Dhanin's investment is being partly funded by state-owned China Development Bank, one of China's three policy lenders--which make big loans to Chinese state-owned companies. But CDB is reshaping itself as more commercially focused, and in the past year has funded acquisitions such as the Hong Kong Stock Exchange's purchase of the London Metal Exchange.

Ping An spokesman Richard Sheng said that Mr. Dhanin intends to hold the stake in the Chinese insurer for the long term. Known as the Chia Tai Group in China, Charoen Pokphand has more than 100 feed mills in China, as well as enterprises ranging from a motorcycle-selling business to Shanghai's mega Super Brand shopping mall to Shanghai-headquartered Zhengxin Bank. In all, it has investments across 15 countries, in 250 companies with 280,000 employees. Its annual revenue is $33 billion.

"China is crucial for CP Group, and it makes sense for the group to get its hands in the country's financial sector, not just to secure funding as it expands in the country, but also as a way to capture some of China's fast growth," said Pongrat Ratanatawanananda, an analyst at Bangkok-based Bualuang Securities

Mr. Dhanin's planned acquisition of China's second-largest insurer by premiums--after state-owned China Life--would be the biggest overseas purchase by a Thai company. It would beat another headline-grabbing deal by another Thai billionaire, Chang beer owner Charoen Sirivadhanabhakdi, who is in the midst of a multibillion-dollar battle with Indonesia's Riady family for a Singapore soft-drink and real-estate company, Fraser & Neave, that would expand his reach in fast-growing Southeast Asia.

With its accumulated profits over the years, HSBC is making six times what it paid for Ping An. The Ping An shares contributed $946 million profit to HSBC for 2011, and $848 million for 2010. The bank said Wednesday its profit on the sale would be roughly $2.6 billion, comparing the sales price with Ping An's carrying value of $6.37 billion at the end of last year.

Though HSBC Chief Executive Stuart Gulliver has said China is the bank's growth focus, the stake sale doesn't come as a surprise. HSBC has its own life-insurance operation in China, a joint venture with Beijing-based asset-management company National Trust Ltd. It also has a 19% stake in Bocom--Bank of Communications Co., the fifth-largest bank in China by assets--which analysts say has yielded it more benefits than the Ping An stake.

While HSBC has the most branches of any foreign bank in China, its presence is dwarfed by that of state-owned banks such as Industrial & Commercial Bank of China Ltd., or even Bocom. With Bocom, HSBC has launched co-branded credit cards in the country. For the 10 years it has held Ping An, the U.K. lender has had few initiatives with the insurer.

HSBC earlier this year sold its general insurance businesses in Hong Kong, Singapore, Argentina and Mexico to AXA Group and Australia's QBE Insurance Group Ltd. in separate transactions.

HSBC first bought a 10% stake in Ping An in 2002 for $600 million, two years before the insurer's Hong Kong listing. The British lender bought an additional 9.91% stake in 2005 for $1.04 billion. Its stake was diluted by a 2011 share placement.

After the share sale, HSBC said, its core tier 1 capital ratio will be boosted by half a percentage point, and the total capital ratio by a full percentage point. As of Sept. 30, its core tier 1 capital ratio stood at 11.7% and the total capital ratio at 15.6%.

Analysts said the extra cushion could give the bank more scope to raise its final 2012 dividend, and could also provide cover against fines the bank faces to settle money-laundering charges in the U.S. HSBC has already set aside $1.5 billion for potential fines, after acknowledging some of the findings of a July U.S. Senate report that alleged certain units of the bank helped drug cartels to launder money and did business with other suspicious clients.

HSBC said Wednesday it plans to complete the Ping An sale in two steps. The first, of about a fifth of its stake, is likely to be completed on Friday, and the second no later than Feb. 1. The sale of the second, larger piece requires approval from the China Insurance Regulatory Commission, the country's insurance watchdog.

HSBC's sales price represents a 2% premium to Ping An's Tuesday closing share price of 57.65 Hong Kong dollars ($7.44). On the Hong Kong Stock Exchange Wednesday, the shares gained 4.9% to finish at HK$60.50.

UBS is advising Charoen Pokphand on the acquisition, a person familiar with the deal said.

Charoen Pokphand couldn't immediately be reached for comment.

(Isabella Steger in Hong Kong, Phromchanyu Phisanu in Bangkok, Dinny McMahon in Beijing and Margot Patrick in London contributed to this article.)

Write to Fiona Law at [e-mail] and Oranan Paweewun at [e-mail]