* Main installment of shares to go to CP on Wednesday
* Payment for shares made in cash - HSBC
* China Development Bank not providing financing -sources
By Lawrence White
HONG KONG, Feb 1 China has approved the sale of
HSBC's remaining $7.4 billion stake in Ping An
Insurance to a group controlled by Thailand's richest
man, allowing completion of the biggest equity purchase in the
country by a foreign investor.
For HSBC Holdings Plc, the sale marks its exit
from a decade-long interest in China's second-biggest insurer
and books it a $2.6 billion post-tax gain from selling what it
no longer considers a core asset.
Approval by the China Insurance Regulatory Commission (CIRC)
had been in doubt after media reports last month raised
questions over Thai conglomerate CP Group's funding for the
State-run China Development Bank (CDB) did not provide
finance for the purchase, despite being lined up for funding
last month, people familiar with the matter told Reuters.
One of the sources, who is familiar with CP Group but not
authorised to speak publicly, said the CDB credit facility was
still in place but CP is not drawing it down as it became such a
politically sensitive issue, and it could complete the deal
Charoen Pokphand Group (CP Group), controlled by
septuagenarian billionaire Dhanin Chearavanont, bought HSBC's
15.6 percent stake in Ping An in December for $9.4 billion,
agreeing to pay up front for around a fifth of that stake last
month, and the rest, backed by CDB, on approval by the Chinese
Payment for the second $7.4 billion tranche of shares was
made in cash, HSBC and CP Group said in separate statements.
Last month HSBC had said the second tranche would be financed in
part in cash and in part under a facility with CDB.
The first payment was supposed to be funded by wholly-owned
CP subsidiaries, but local media reports said people not
directly tied to the Thai food conglomerate were behind the
deal, prompting CDB to voice its concerns. The
bank would likely not want to anger Beijing by being involved in
facilitating a non-mainland investment in Chinese stocks.
"If, after all this news, CIRC approved the deal, it
indicates (the regulator) is comfortable that CP will be the
holder. This will remove the overhang on the Ping An share
price," said Edmond Law, a China insurance analyst at UOB Kay
The Thai group has interests spanning poultry and animal
feed, supermarkets and auto making, and has a long history in
China as the first multinational to invest in the country's
agri-business in 1979. It was later tasked with helping to
modernise China's farm sector.
The Ping An deal was Asia's second-biggest acquisition in
2012, behind Chinese oil firm CNOOC Ltd's planned
$15.1 billion purchase of Canada's Nexen Inc. 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 an army of some 500,000 agents.
The sale is part of HSBC's strategy of selling non-core
assets and shrinking in many markets to improve profitability.
But some people were worried that Europe's biggest bank will
lose about $1 billion in earnings contribution that it may
struggle to replace.
"I understand strategically why they are doing it, but it
will be dilutive to returns," said Ian Gordon, analyst at
Investec Securities in London. "HSBC is short of earnings and
long of capital and after this deal its emerging capital surplus
- for which it has no avenues to deploy it - becomes even more
pronounced," he said.
The capital boost from the sale should underpin dividend
prospects, however, and offer greater flexibility as regulators
in Europe act tougher on banks' capital requirements.
By 1147 GMT HSBC's London shares were down 0.3 percent, in
line with a slightly weaker European banking index.
Before the Ping An sale, HSBC had already sold about $6.7
billion worth of assets, according to Thomson Reuters data,
including non-life insurance operations and retail banking
branches in places such as Thailand and the United States.
HSBC sold the Ping An stake for HK$59 per share, for a total
of HK$72.74 billion ($9.4 billion). The deal, given its size,
was an important and sensitive sale for HSBC, and was personally
overseen by CEO Stuart Gulliver, said a person with direct
knowledge of the matter.
HSBC, which spent $1.7 billion building its Ping An stake
between 2002-05, also has a 19.9 percent interest in Bank of
Communications, China's fifth-largest lender, and owns
8 percent of unlisted Bank of Shanghai and 62 percent of Hong
Kong's Hang Seng Bank, which in turn owns 13 percent
of China's Industrial Bank.