HONG KONG A conglomerate controlled by Thailand's richest man has bought a minority stake in China's Ping An Insurance (2318.HK) for $9.38 billion from global bank HSBC, a bold move that ranks as Asia's second-largest deal this year.
Dhanin Chearavanont's Charoen Pokphand Group (CP Group) bought the 15.6 percent stake in a deal that marks a departure from its core food businesses, such as poultry and animal feed, but appears to strengthen the 73-year-old's ties to Beijing.
HSBC (HSBA.L) (0005.HK), which announced the transaction on Wednesday under its recovery plan to sell non-core assets, said CP Group's purchase was being partly financed by state-run China Development Bank.
Dhanin - worth $9 billion according to Forbes magazine - already has major business interests in China ranging from agriculture to retail to auto manufacturing.
"This is phenomenal for HSBC shareholders because the bank is now sitting on at least $8 billion in profit," said Jim Antos, an analyst at Mizuho Securities in Hong Kong.
"I'm not sure what CP Group would do with the stake though. I was joking earlier that every Ping An shareholder will now get a bucket of fried chicken for their insurance policy."
HSBC said it will make a post-tax gain of $2.6 billion on the deal.
CP Group has a long history in China: it was the first multinational to invest in China's agri-business in 1979 and, under Beijing's latest five-year plan, it was tasked with helping to modernize China's farm sector. It also operates Lotus supermarkets in Shanghai, according to the company's website.
Also on Wednesday, China's biggest carmaker, SAIC Motor Corp, said it would start making cars in Thailand with CP Group.
CP Group has only limited experience in insurance, though. In May this year, it sold out of a Thai joint venture with German insurer Allianz (ALVG.DE) for about $9.8 million.
CP Group could not be reached for comment on Wednesday, a public holiday in Thailand to mark the Thai king's birthday.
The Ping An deal is Asia's second-biggest acquisition so far this year, behind Chinese oil company CNOOC's planned $15.1 billion purchase of Canada's Nexen.
Founded in 1988 as China's first joint-stock insurer, Ping An has grown into one of the world's largest, with 74 million clients, more than 175,000 employees, and about 500,000 agents.
SENSITIVE SALE FOR HSBC
HSBC's global strategy is to divest holdings to improve its profitability, exiting the decade-old Ping An investment as it looks to sell non-core assets.
"The investment in a Chinese insurer branching into pan-financial services has looked at odds with management's focus ever since the new strategy was launched in 2011," said Chirantan Barua, analyst at BernsteinResearch in London.
The bank earned $946 million from its Ping An stake last year, but analysts said the capital boost was more important and should underpin dividend prospects and offer greater flexibility at a time when UK regulators are taking a hard line on capital. The sale will add 0.5 percentage points to HSBC's core Tier 1 capital ratio, which was 11.7 percent at the end of September.
Ahead of the Ping An sale, HSBC had already sold about $6.7 billion worth of assets, according to Thomson Reuters data, including its non-life insurance operations and retail banking branches in places such as Thailand and the United States.
Thailand's outbound acquisitions have soared this year, fuelled by a hot local stock market - up nearly 30 percent year to date - and cash rich Thai tycoons. Thai M&A deals have hit a record $18.7 billion so far this year, more than 2010 and 2011 combined, Thomson Reuters data shows.
HSBC sold its stake for HK$59 per Ping An (2318.HK) share, for a total of HK$72.74 billion ($9.4 billion). Ping An's Hong Kong shares closed up 4.9 percent, beating the Hang Seng Index's .HSI 2.2 percent rise.
By 7:15 a.m. EDT HSBC's London shares were up 0.6 percent, in line with a firmer European bank index .SX7P.
The bank said the sale would complete in stages, with a fifth of the stake transferred to the Thai buyer on December 7. The remainder will be transferred upon approval by the China Insurance Regulatory Commission.
"CDB is a state-owned policy bank with a certain chemistry with Beijing, so it's reasonable to conclude that this Ping An deal has received the go-ahead by regulators," said Olive Xia, an analyst at Core Pacific-Yamaichi Securities in Shanghai.
The Ping An stake, given its size, was an important and sensitive sale for HSBC - one that was rumored to be up for grabs ever since the 2008 financial crisis.
HSBC had spent $1.7 billion building its stake in Ping An, China's second-largest insurer, between 2002 and 2005. It confirmed it was in talks to sell the stake on November 19.
The deal was personally overseen by a three-man team headed by HSBC CEO Stuart Gulliver. The bank's group M&A chief, Stephen Moss, and strategy head John Flint were the principal deal-makers, said a source with direct knowledge of the matter. UBS advised CP Group, the source said. UBS declined to comment.
Some analysts expect HSBC's stake in Bank of Communications (3328.HK), China's fifth-largest lender, to be next on the list, although the bank has said that is core to its Chinese plans, and other analysts expect it to increase the holding if allowed. That stake stands at 19.9 percent and is worth about HK$79 billion, according to Thomson Reuters data.
HSBC also still owns 8 percent of unlisted Bank of Shanghai and 62 percent of Hong Kong's Hang Seng Bank (0011.HK), which in turn owns 13 percent of China's Industrial Bank (601166.SS).
As part of its Ping An investment, CP Group agreed to hold any shares it buys for at least six months, HSBC said.
(Reporting by Kelvin Soh and Denny Thomas; Additional reporting by Clement Tan, Nishant Kumar and Donny Kwok in HONG KONG, Khettiya Jittapong and Orathai Sriring in BANGKOK, and Steve Slater in LONDON; Editing by Mark Bendeich and Elaine Hardcastle)