HSBC Holdings Plc agreed to sell its stake in China’s Ping An Insurance (Group) Co. to Thai billionaire Dhanin Chearavanont for $9.4 billion as Europe’s biggest bank by market value moves to revive profit and boost capital.
Dhanin’s Charoen Pokphand Group Co. will buy the 15.6 percent stake in China’s second-largest insurer for about HK$59 ($7.61) a share, giving the U.K. bank a $2.6 billion profit, London-based HSBC said in a statement today. Ping An shares jumped the most in almost three months in Hong Kong trading.
The sale marks the 37th divestment by HSBC Chief Executive Officer Stuart Gulliver, who said the group remained committed to China through its investment in Bank of Communications Co. Dhanin’s Charoen, which claims to have been the first major foreign investor in China after Deng Xiaoping opened the economy in 1979, is gaining access to an insurance market that has expanded an average 19 percent a year in the past decade.
“Slowly but surely, Stuart Gulliver is refocusing HSBC back to its core strength of commercial banking,” Adam Chan, a Hong Kong-based analyst at CCB International Securities Ltd., said today. The CEO is “making the tough choices necessary to execute on the strategy he laid out 18 months ago.”
The per-share price represents a 1 percent discount on Ping An’s close on Nov. 16, before news of the deal was first reported. The stock has gained 19 percent this year after rising 5.6 percent today to HK$60.90 as of 3:19 p.m. HSBC climbed 1.4 percent to HK$79.80 in Hong Kong and was up 0.6 percent at 640 pence as of 8:04 a.m. in London trading.
Other financial shares also climbed, pushing the Hang Seng Finance index to a 2 percent increase, the biggest gain since Sept. 14. China has abolished a regulation limiting insurers’ investments in commercial banks, the insurance regulator said in a statement on its website yesterday.
Gulliver, 53, is seeking to cut costs by as much as $3.5 billion by 2013 and boost returns by selling assets to focus on growing economies in which the bank has the greatest market share. The lender is cutting 30,000 jobs and agreed in March to sell some of its general insurance units in Asia and Latin America for about $914 million.
The British lender valued its holding in Shenzhen-based Ping An at $6.37 billion at the end of December, according to its annual report. It has spent $1.6 billion since 2002 building up the stake, in part by making purchases from Goldman Sachs Group Inc. and the buyout unit of Morgan Stanley. HSBC’s holding shrank to about 16 percent after Ping An’s $2.5 billion stock offering in 2011.
“The stake sale comes at a good time for HSBC,” Sandy Mehta, the Hong Kong-based chief executive officer of Value Investment Principals Ltd., said today. “Any moves in which banks are realizing and cashing in on investment gains and augmenting their capital position is sound strategy, given global uncertainties and ongoing regulatory and capital pressures banks are facing.”
Charoen Pokphand will buy the shares through three indirect wholly owned units, HSBC said. The transaction will take place in two phases, with the first to be completed by Dec. 7. China Development Bank Corp., a policy lender, will finance part of the deal through its Hong Kong branch, according to the statement.
“This transaction represents further progress in the execution of the group’s strategy,” Gulliver said in the statement. “China remains a key market for the group,” he said, adding that HSBC will build its strategic partnership with Bank of Communications.
HSBC owns 19 percent of the Shanghai-based lender, the nation’s fifth-largest, and 8 percent of closely held Bank of Shanghai Co. Its Hong Kong unit, Hang Seng Bank Ltd., holds a 13 percent stake in China’s Industrial Bank Co.
The latest transaction will bolster HSBC’s core Tier 1 capital ratio by about 50 basis points and its total capital ratio by 100 basis points, according to the bank’s statement. A basis point is 0.01 percentage point.
Ping An Chairman Peter Ma has overseen the expansion of the company into the world’s third-largest insurer by market value since he founded it in the southern Chinese city of Shenzhen 24 years ago. The group also has banking, securities and money management operations.
China’s insurance market expanded an average 19 percent a year in the past decade while insurers’ assets jumped 10-fold, according to the China Insurance Regulatory Commission. Premium income slid 1.3 percent in 2011 as regulators tightened rules on selling coverage over bank counters and insurers adjusted their product mix to improve profitability.
“This insurance business doesn’t fit into HSBC’s ’five filters’ strategy,” said Dominic Chan, a Hong Kong-based analyst at BNP Paribas SA. “For the longer term, HSBC is probably thinking it would be very hard for them to get some kind of control over China’s second-largest life insurer.”
Dhanin’s net worth is estimated at $6.2 billion, according to the Bloomberg Billionaires Index. Almost 60 percent of the 73-year-old’s fortune is from investments in overseas private companies.
Calls to Dhanin’s office on a public holiday in Bangkok weren’t answered. Suthana Hongthong, a Bangkok-based spokeswoman for the company, said she couldn’t immediately comment on the deal, when reached by mobile phone.
Charoen Pokphand was established in 1921 as an agricultural seed retailer in Bangkok by Dhanin’s father, Chia Ek Chor, who came from Shantou in China’s Guangdong province, and his uncle, Chia Siew Whooy, according to the company.
Dhanin became a billionaire expanding his father’s chicken feed business. Along the way, he added an Internet fortune even though he didn’t know how to send e-mail or use a computer. He got his start in telecommunications in 1990 when he won Bangkok’s first private phone license and built a broadband telecommunications network in Thailand.
The group has since expanded into a global business with operations in agriculture, retailing, trading, telecommunications, property development and petrochemicals, employing more than 250,000 people, according to its website, and has annual revenue of about $33 billion.
Along the way, Dhanin has had some missteps. Much of the Chearavanont family’s fortune eroded after Thailand devalued its currency in July 1997, triggering recession in much of Asia. Dhanin’s $5 billion in wealth fell below $1 billion, according to Forbes magazine.
Among the group’s mistakes was rapid expansion in areas of limited expertise. By the mid 1990s, CP was involved in such unrelated activities as motorcycle manufacturing, hotels, brewing and gas stations, in both China and Thailand.
When the empire — much of it built on foreign loans — began to falter, Dhanin negotiated to freeze debt payments, halted dozens of ventures and sold off assets.