Chinese regulators are expected to block the sale of HSBC’s multi-billion dollar stake in Ping An Insurance. In a deal announced last month, Thai billionaire Dhanin Chearavanont was to buy the British bank’s entire stake in the insurer for $9.4 billion, helped by a loan from China Development Bank.
Now, the state-owned bank has changed its mind (one person close to the deal said it would “100 per cent not happen.”) Why the cold feet? Funding for part of the sale made in December may have violated regulations that bar using bank loans to buy stakes in insurance companies. Mainland investors led by a Chinese businessman reportedly contributed to the payment using money from three municipal banks he controls, according to Chinese business magazine Caixin. Thai ex-prime minister Thaksin Shinawatra was another. Ping An and Dhanin’s Chaoren Pokphand Group both denied the story. Still, the CDB received a “risk warning” from regulators on the loan, which effectively calls off the deal, Caixin reported on Jan. 8.
If Dhanin can find other funding before the payment deadline the sale could continue. The bigger question, however, is whether the China Insurance Regulatory Commission is against the deal. “The issue is about how the regulator views the buyer and the structure of the deal. I don’t think that’s favorable at the moment,” says Wilson Li, an analyst at Guotai Junan Securities Co.
The sale of Ping An was always going to be hard. It is the country’s second largest insurer and has long been connected to the country’s elite—relatives of Chinese premier Wen Jiabao amassed a multi-billion dollar stake in company before it went public in 2004, according to a New York Times report. “It wouldn’t be surprising for the CIRC to reject the deal as currently proposed,” says Jim Antos, a Hong Kong- based analyst at Mizuho Securities Asia Ltd. “What is surprising is that the vetting process hadn’t been completed before details of the sale were released to the public.”