* CDB was to finance bulk of CP's purchase of the stake
* Sale was Asia's 2nd-biggest M&A deal announced last year
* CP has major interests in China from agriculture to retail
By Heng Xie and Clare Baldwin
BEIJING/HONG KONG, Jan 8 HSBC's sale of its $9.4
billion stake in Ping An Insurance to Thailand's CP
Group has been thrown into jeopardy after state-run China
Development Bank (CDB) voiced concerns over funding for the
deal, sources told Reuters.
A collapse of the deal, Asia's second-biggest M&A
transaction announced last year, would rob HSBC Holdings Plc
of a $2.6 billion post-tax gain and set back
its plans to shed non-core assets.
"Indeed, there are some problems," said one of the sources,
referring to CDB's role in the sale. The sources were not
authorised to speak publicly on the matter.
HSBC agreed late last year to sell the 15.6 percent stake in
Ping An to CP for HK$59 per share. The bank said in
a Dec. 5 statement the sale of its stake in the world's
second-largest life insurer by market value would be completed
in two stages.
About a fifth of the holding was to be transferred to the
Thais on Dec. 7.
CP, controlled by Thailand's richest man, Dhanin
Chearavanont, said it would purchase the shares through four
British Virgin Islands companies - All Gain Trading Ltd, Bloom
Fortune Group Ltd, Business Fortune Holdings Ltd and Easy Boom
Developments Ltd - which it said are wholly owned subsidiaries.
The rest of the purchase is financed by the Hong Kong branch
of CDB, and is subject to approval by the China Insurance
Regulatory Commission (CIRC), HSBC said at the time.
Late last month, media reports in China and Hong Kong said
the first CP payment came from funding sources not directly tied
to the Thai conglomerate, as opposed to the wholly owned CP
units as agreed previously.
If CDB decides to withdraw its funding support for the deal,
CP would have to scramble to find another large lender to back
the acquisition quickly following the CIRC approval due Feb. 1.
CP, whose core food businesses are poultry and animal feed,
declined to comment, as did HSBC and Ping An.
Ping An's Shanghai-listed shares closed down 3.7 percent at
45.44 yuan on Tuesday, while its Hong Kong shares ended down 4
percent at HK$68.15.
By 1320 GMT HSBC's London shares were down 0.7 percent,
underperforming a 1 percent rise in Europe's bank index.
INTERESTS IN CHINA
Dhanin, worth $9 billion according to Forbes magazine,
already has major business interests in China ranging from
agriculture to retail to auto manufacturing.
CP 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 modernise the Chinese farm
sector. It also operates Lotus supermarkets in Shanghai,
according to the company's website.
The Ping An sale, given its size, is an important and
sensitive deal for HSBC, which spent $1.7 billion building its
stake in the Chinese insurer between 2002 and 2005.
The deal was widely welcomed by HSBC analysts and investors
at the time for crystallising the gain on a non-core asset.
But the bank faces a challenge replacing lost income from
recent asset sales, including Ping An, according to Ian Gordon,
analyst at Investec Securities in London. "Looking into 2013,
the loss of an Associates contribution of c.$1bn pa leaves a gap
to fill, with no obvious solution immediately at hand," he said,
downgrading his stance on the bank to "hold" from "buy".
The South China Morning Post on Tuesday said CDB was
reconsidering its decision to back the CP-Ping An deal, citing
people familiar with the situation.
CDB's concern stems from the various media reports that
trace CP's first payment for the deal to outside sources, the
Ping An has been in the news since late last year after a
series of reports by the New York Times. One report in October,
citing corporate and regulatory records, said the family of
China's outgoing Premier Wen Jiabao had amassed $2.7 billion in
wealth at one point, the biggest source of which came through
stakes in Ping An.
Wen, who went on a state visit to Thailand at the end of
November, is due to step down as premier in March.