HSBC Closes Ping An Deal - Analyst Blog

By Zacks | February 04, 2013 AAA

HSBC Holdings plc (HBC) concluded the sale of its remaining stake in Chinese insurance giant Ping An Insurance (Group) Company of China, Ltd to Thailand-based Charoen Pokphand Group, after receiving regulatory approval. Last month, the deal came to an unexpected halt after China Development Bank (CDB) expressed concerns regarding the funding of the deal.

The China Insurance Regulatory Commission (CIRC) gave approval for the sale of 976.1 million shares held by HSBC in Ping An to Charoen Pokphand. The payment will be made in cash and HSBC expects the transfer to conclude by Feb 6. It is however unclear whether CDB financed the deal.

In Dec 2012, HSBC agreed to sell the Ping An stake to Charoen Pokphand for an estimated $9.4 billion. The deal was to be completed in two phases. The first phase involved the successful transfer of 21% of the stake on Dec 7, 2012. The remaining 79% shares were to be transferred on Jan 7, 2013, after the deal got approval from the CIRC.

Charoen Pokphand was funding the proceeds partly in cash and partly through loan obtained from CDB. Though Charoen Pokphand successfully executed the 21% stake buyout on Dec 7, speculations surrounding the financing of the deal started doing the rounds.

It was conjectured that individual investors, other than the Thai conglomerate, had provided the funds for the Ping An deal, which contradicted the guidelines laid down by CIRC. The guidelines prohibit bank loans and other non-proprietary capital to be used for acquiring stake in insurance companies. Further, it stated that any person or institution on trusteeship could not hold the equity of an insurance company.

The deal is likely to fetch HSBC a post-tax gain of $2.6 billion on the sale after deducting the carrying value of an investment in Ping An as well as reclassification of the connected foreign exchange and other reserves.

HSBC has resorted to aggressive restructuring since 2011. These initiatives involve streamlining of its worldwide operations by shedding non-core assets and trimming workforce to boost profitability. The Ping An stake sale was a part of this strategy. The conclusion of the deal would be a major boost for the company's restructuring initiatives.

Many other European banks have adopted almost similar cost cutting measures like HSBC. Deutsche Bank AG (DB), Credit Suisse Group (CS) and ING Groep NV (ING) have been divesting non-core assets and eliminating jobs to strengthen profits over the past couple of years.

Currently, HSBC carries a Zacks Rank #3 (Hold).
 

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