March 13, 2019 / 5:34 AM / in 9 days

Breakingviews - Ping An stock repurchase comes with Beijing twist

FILE PHOTO: The logo of Ping An Insurance is seen at the Global Mobile Internet Conference (GMIC) at the National Convention Center in Beijing, China April 27, 2018. REUTERS/Damir Sagolj/File Photo GLOBAL BUSINESS WEEK AHEAD

HONG KONG (Reuters Breakingviews) - Ping An’s share repurchase comes with a Beijing twist. China’s biggest insurer by market value plans to buy up to $1.5 billion of its Shanghai shares. The company, which has a Hong Kong listing too, says it’s undervalued. But this transaction also responds to an official push to bolster mainland markets. Shareholders benefitted this time, but such policy winds can blow both ways.

The $190 billion conglomerate said on Tuesday that it would snap up 5-10 billion yuan of its stock, marking its first-ever buyback program. Executives have long argued that shares are undervalued; Refinitiv data shows it trades at around 10 times forward earnings in both markets. Its Shanghai shares are up more than 2 percent over the past year – outperforming an almost 8 percent slump in the local index – but executives still say markets apply an unfair “conglomerate discount”.

Regardless of that logic, the timing of this move was set partly in Beijing. Ping An said in October that it had formulated a buyback plan to benefit shareholders and “actively respond to the policy orientation of the PRC’s government and regulatory authorities”. That referred to a top-level push to prop up sagging exchanges, which included making it easier for companies to do buybacks – although onshore benchmarks had recovered far past October’s level before this week’s announcement.

Investors welcomed the news, which was accompanied by a 20 percent annual earnings surge that beat forecasts. Shares in Shanghai were up 2.6 percent by midday Wednesday, and 1.5 percent in Hong Kong.

Even so, the episode raises questions. Beijing’s efforts to boost mainland markets could generate issues for dual-listed firms. It’s not yet clear, for instance, whether Ping An’s shareholders in Hong Kong will get a similar buyback. It also underscores that officials still hold sway over whether and when a company should buy its own shares. That influence makes government relations particularly important for big conglomerates. Ping An’s earnings reports sometimes discuss key Chinese Communist Party meetings and emphasise how the company furthers politically popular objectives. That can work in investors’ favor. But it’s nothing to take for granted.

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