Ping An May Cash in on China Finance Share Craze
A possible $2.5 billion secondary offering bid by the insurance giant highlights how hot the market for mainland financial services remains
The stampede by Chinese financial services players to raise megabucks with initial or secondary stock offerings shows no signs of letting up. China Merchant’s Bank, the nation’s sixth biggest lender, has been overwhelmed by applications from institutional and retail investors for its $2.4 billion initial public offering that will start trade on Sept. 22.
In October, the mainland’s biggest lender, Industrial & Commercial Bank of China (ICBC), hopes to rake in $19 billion in a dual listing of shares in Hong Kong and Shanghai in what will likely be the biggest IPO in history (see BusinessWeek.com, 9/5/06, “China Bank Stocks: What, Me Worry?”).
Now Chinese insurers may be jumping into the act. Ping An Insurance, China’s second biggest life and No. 3 non-life insurance company, may be planning to raise $2.5 billion in a secondary share offering either in Shanghai or Shenzhen during the first half of 2007, according to a report by Bloomberg News. Reached by e-mail, a spokesman for Ping An, which is based in Shenzhen, declined to comment on the report.
EASY MONEY. Given the rapacious appetite for Chinese financial stocks, the odds are pretty good Ping An is taking a serious look at the offering idea. Global and mainland investors just can’t seem to get enough of Chinese bank and financial service shares. Two big, mainland, state-owned banks, China Construction Bank and Bank of China, had little trouble selling a combined $22 billion-plus worth of share offerings over the past year in listings in Hong Kong and Shanghai (see BusinessWeek.com, 5/31/06, “A Golden Age for Chinese Banks”).
Many are betting that China’s stellar growth, burgeoning middle class, and rising disposable incomes will set the stage for the mainland to emerge as one of the most dynamic financial services markets in the 21st century. Meanwhile, Chinese banks and insurers have a choice opportunity to raise a lot of money effortlessly, to grow their businesses, and to hunt for acquisitions.
For instance, China Construction Bank, whose share price has appreciated more than 40% since its IPO last October, announced on Aug. 24 that it will spend $1.24 billion to buy the Hong Kong consumer-banking operations of Bank of America (BAC). Ping An spent more than $600 million in July to buy 89% of Shenzhen Commercial Bank, which will move the insurer into the explosively fast-growing mainland credit card business as well as into commercial banking.
STRONG BALANCE SHEET. Ping An, which is 19.9% owned by HSBC (HBC), is considered a well-managed company by analysts, and has ambitious plans to diversify beyond insurance and into banking, securities, and asset management. It also has a strong balance sheet compared to other Chinese insurers. “Ping An group’s capitalization is strong by domestic standards,” says a recent report by Standard & Poor’s credit analysts Connie Wong and Qiang Liao.
Thanks to robust growth in its core life insurance business, Ping An’s 2006 first-half net income jumped 85% to $524 million. Ping An chairman and Chief Executive Ma Mingzhe has won high marks for recruiting overseas talent and building up a strong brand presence in China. “Half of the company’s high-level management team members are from overseas,” Sun Jianyi, vice-CEO at Ping An, told BusinessWeek in a recent interview.
Ping An ranked No. 6 in a BusinessWeek.com and Interbrand Asia survey of China’s top 20 brands published last month (see BusinessWeek.com, 8/28/06, “BW’s 20 Best Chinese Brands”). That kind of name recognition will come in handy should the Chinese insurer ask mainlanders to pony up a cool $2.5 billion next year.