China's Ping An buys Fortis stake for $2.7 billion

By Donny Kwok and Tony Munroe

HONG KONG (Reuters) - Ping An Insurance (Group) Co (2318.HK), China's No.2 life insurer, bought a 4.2 percent stake in Dutch-Belgian financial services firm Fortis (FOR.AS)(FOR.BR) for $2.7 billion, the latest in a spate of overseas investments by Chinese financial firms.

The deal, which makes Ping An the top shareholder in Fortis, is the largest overseas acquisition by a Chinese insurance company, and follows the insurer's recent $154 million purchase of 9 percent of Hong Kong fund manager Value Partners (0806.HK).

Chinese financial firms, armed with cash and world-beating valuations, are scouring the globe for acquisitions, eager to invest in subprime-hit U.S. and European counterparts.

"We're at the cusp of Chinese companies getting big enough and sufficiently well capitalized that they're looking to dip their toe in the water in terms of international expansion," said Anthony Muh, executive director at AllianceTrust Asset Management, which manages about $1 billion in Asian equities.

"We're definitely going to see a lot more of that," he added.

The investment, which came from policyholder funds, caught some observers by surprise, sending Ping An shares up nearly 9 percent. Under Beijing's rules, Ping An, which is about 17 percent owned by HSBC Holdings (HSBA.L)(0005.HK), can invest about 5 percent of its assets overseas, and the Fortis stake accounts for roughly two thirds of that.

"They've used policyholder funds or investment funds rather than their own capital to make the investment, so it has to stack up in investment terms," said Credit Suisse analyst Bill Stacey.

Ping An President Louis Cheung will take a seat on the board of Fortis, which is the sort of diversified financial services holding company that Ping An aspires to be. The companies did not outline any specific cooperation plans going forward.

Fortis shares have fallen 39 percent from an April 11 peak and the firm posted disappointing third-quarter results, with the threat of subprime mortgage-related losses still lingering.

Still, UBS analyst Sally Ng said the deal makes sense for Ping An: "You get a euro hard currency, you get a pretty good 4 percent yield, so for a long-term fund like life insurance, it's probably worth investing."

DIVERSIFICATION

Larger rival China Life Insurance (2628.HK)(LFC.N) has also expressed its interest in buying abroad, but has not yet made a significant investment.

Ping An bought its Fortis shares in the open market over the past few months with the knowledge of Fortis, which has been looking to diversify its shareholder base and board structure.

JP Morgan (JPM.N) represented Ping An, while Merrill Lynch MER.N advised Fortis.

Ping An bought 95.01 million Fortis shares for 1.81 billion euros ($2.7 billion), or an average of 19.05 euros each. This puts it at about 7 times forecast 2008 earnings and 1.1 times forecast book value for next year.