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

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.ASFOR.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.L0005.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.”


Larger rival China Life Insurance 2628.HKLFC.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.

By comparison, HSBC trades at 12.5 times 2008 earnings, and Citigroup C.N trades at about 7 times 2008 earnings.

In a bid to diversify their holdings at a time when high-flying local stock markets are starting to slide, Chinese financial firms have been putting some of their vast pools of assets to work abroad.

Such deals are also seen having strategic value, allowing China’s big but inexperienced financial firms to learn from their global peers.

Last month, China's biggest lender, Industrial and Commercial Bank of China 1398.HK, said it would pay $5.6 billion for a 20 percent stake in South Africa's Standard Bank SBKJ.J, the biggest foreign purchase by a Chinese commercial bank.

In May, China’s new state investment fund bought a $3 billion stake in U.S. private equity firm The Blackstone Group


Beijing has been encouraging domestic insurers to invest in non-insurance sectors such as banking, asset management and even infrastructure to expand their profit streams.

China Life Insurance said on Wednesday it planned to boost its equity investments, especially in the financial, power and ports sector and expand its asset management business.

Last week, Ping An’s Hong Kong fund arm hired Mercer to help it select the managers for overseas investments by mainland Chinese investors, as a growing number of Chinese financial firms win approval under China’s Qualified Domestic Institutional Investor scheme to help clients invest abroad.

Shares of Ping An have surged 170 percent over the past year.

(US$1=HK$7.8=0.6739 Euro)

Additional reporting by Jeffrey Hodgson; Editing by Anne Marie Roantree & Jean Yoon