HSBC Holdings PLC is in talks to sell its $9.3-billion (U.S.) stake in China's Ping An Insurance, stepping up a programme by Europe's biggest bank to shed non-core operations to boost profitability.
A sale, widely expected as part of HSBC's three-year recovery plan after the 2008 financial crisis and regulatory reforms, could earn the bank a pre-tax profit of up to $6.5-billion, Mizuho Securities analyst Jim Antos said.
The bank, which spent $1.7-billion to build a 15.6 per cent stake in China's second-largest insurer between 2002 and 2005, confirmed it was in talks to sell the stake, saying that it has "from time to time received approaches regarding its shareholding".
Its statement followed a Monday report by the Hong Kong Economic Journal, a Chinese language newspaper, that named tycoon Dhanin Chearavanont, Thailand's richest man, as a potential buyer.
"This makes sense for HSBC because it has been disposing of so many of its non-core businesses," said Ivan Li, an analyst at Maybank Kim Eng in Hong Kong. "The question that everyone has will be on HSBC's stake in Bank of Communications."
HSBC has announced 41 disposals and closures since the start of 2011, and the potential Ping An sale fuelled speculation about other assets that are not integral to its day-to-day business operations.
Its stake in Bank of Communications (BoCom), China's fifth-largest lender, stands at 19.9 per cent and is worth about HK$79-billion ($10-billion U.S.), according to Thomson Reuters data.
HSBC has signed up for fundraisings to keep its BoCom stake intact, but it has not paid up for some Ping An cash calls, allowing its holding to be diluted.
"It's cleaning up the strategy, as they don't have any control over Ping An," said Simon Maughan, analyst at Olivetree Securities in London. " This looks like a maturing of the China strategy ... I would hope it's a powerful signal that HSBC can organically deliver in China, so I think it's a positive step."
Ping An said in a statement that it will pay close attention to progress in the matter.
HSBC, the name and origins of which date back to its start in Hong Kong and Shanghai in 1865, has been keen to move faster in China and likes to portray itself as different from other foreign banks that pulled back during the crisis. Those retreats were frowned upon by China's government.
The bank's ambitions, however, have been constrained by regulations that have limited attempts to increase its holding in BoCom, open more branches on the mainland or list its shares in Shanghai.
Mizuho Securities analyst Antos said that the profit from a sale of the Ping An stake would help to boost HSBC's Tier One capital ratio to 13.6 per cent, from about 13.1 per cent, but he cautioned on the size of the deal.
"You can't sell if you can't find a buyer, because it's impossible to dump so many shares on the market at one time," he said.
A sale would require approval from China's insurance and banking regulators, narrowing the list of possible buyers because Chinese authorities have traditionally allowed only financial groups to take stakes in the country's major banks and insurers.
Another challenge to a sale is a $4-billion initial public offering (IPO) by Chinese insurer Pacific Insurance Company of China Group (PICC), which could steal strategic buyers that may otherwise have acquired HSBC's Ping An stake.
The sheer size of the deal makes it difficult to sell to a single buyer. Bank of America last year sold its remaining $6.6-billion stake in China Construction Bank to Singapore state investors Temasek Holdings and a consortium of Chinese buyers.
Sovereign wealth fund Qatari Investment Authority has also invested in Chinese financial groups, owning about 2 per cent of Agricultural Bank of China <1288.HK>.
Forbes magazine says that Thai tycoon Chearavanont, who owns unlisted Chaoren Pokphand (CP) Group, Thailand's largest food and agricultural business, is worth $7.4-billion.
CP Group was not available for comment and Chearavanont could not be reached.
The bank has been exiting non-core businesses since Chief Executive Stuart Gulliver laid out his plans in May 2011 to boost profitability. It has since sold or wound down various businesses including its non-life insurance operations.
This year the bank sold its general insurance business to French insurer Axa and Australia's QBE Insurance Group Ltd. It is also looking to sell its 18 per cent stake in Vietnamese insurer Bao Viet Holdings.