A conglomerate controlled by Thailand's richest man, Dhanin Chearavanont, has bought a minority stake in China's Ping An Insurance for $9.38-billion from global bank HSBC, a bold move that ranks as Asia's second-largest deal this year.
Mr. Dhanin's Charoen Pokphand Group (CP Group) bought the 15.6 per cent stake in a deal that marks a major departure from its core food businesses, such as poultry and animal feed, but appears to strengthen the 73-year-old's ties to Beijing.
HSBC, which announced the transaction on Wednesday under its recovery plan to sell non-core assets, said CP Group's purchase was being partly financed by state-run China Development Bank.
Mr. Dhanin – worth $9-billion according to Forbes magazine – already has major business interests in China ranging from agriculture to retail to auto manufacturing.
"This is phenomenal for HSBC shareholders because the bank is now sitting on at least $8-billion in profit," said Jim Antos, an analyst at Mizuho Securities in Hong Kong.
"I'm not sure what CP Group would do with the stake though. I was joking earlier that every Ping An shareholder will now get a bucket of fried chicken for their insurance policy."
CP Group has a long history in China: it 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 China's farm sector. It also operates Lotus supermarkets in Shanghai, according to the company's website.
Also on Wednesday, China's biggest carmaker, SAIC Motor Corp, said it would start making cars in Thailand with CP Group.
CP Group has only limited experience in insurance, though. In May this year, it sold out of a Thai joint venture with German insurer Allianz for about $9.8-million.
"CP Group is an important global ethnic Chinese business, and we will work together to achieve stable growth," Ping An spokesman Richard Sheng said.
CP Group could not be reached for comment on Wednesday, a public holiday in Thailand to mark the Thai king's birthday.
Olive Xia, an analyst at Core Pacific-Yamaichi Securities in Shanghai, said CP Group's funding from the China Development Bank (CDB) indicated Beijing was happy with the deal.
"CDB is a state-owned policy bank with a certain chemistry with Beijing, so it's reasonable to conclude that this Ping An deal has received the go-ahead from the regulators," she said.
For its part, HSBC is on a global plan to divest various holdings as it seeks to improve its profitability, exiting the decade-old investment as it looks to sell non-core assets.
Ahead of the Ping An sale, HSBC had already sold about $6.7-billion worth of assets, according to Thomson Reuters data, including its non-life insurance operations and retail banking branches in places such as Thailand and the United States.
Thailand's outbound acquisitions have soared this year, fuelled by a hot local stock market – up nearly 30 per cent year to date – and cashed-up Thai tycoons. Announced Thai M&A deals have hit a record $18.7-billion so far this year, more than 2010 and 2011 combined, Thomson Reuters data shows.
HSBC sold its stake for HK$59 per Ping An share, for a total of HK$72.74-billion ($9.39-billion). By 0723 GMT, Ping An's Hong Kong shares were up 5.5 per cent after the news at HK$60.85, beating the Hang Seng Index's 1.8 per cent rise.
The bank said in a statement that the sale would complete in stages, with about a fifth of the stake to be transferred to the Thai buyer on December 7. The remainder will be transferred upon approval by the China Insurance Regulatory Commission.
The Ping An stake, given its size, was an important and sensitive sale for HSBC – one that was rumoured to be up for grabs ever since the 2008 financial crisis.
The deal was personally overseen by a three-man team headed by HSBC CEO Stuart Gulliver. The bank's group M&A chief, Stephen Moss, and former strategy head John Flint were the principal deal-makers, said a source with direct knowledge of the matter.
Analysts expect HSBC's stake in Bank of Communications, China's fifth-largest lender, to be next on the list. That stake stands at 19.9 per cent and is worth about HK$79-billion, according to Thomson Reuters data.
HSBC also still owns 8 per cent of unlisted Bank of Shanghai and 62 per cent of Hong Kong's Hang Seng Bank, which in turn owns 13 per cent of China's Industrial Bank.
HSBC had spent $1.7-billion building its stake in Ping An, China's second-largest insurer, between 2002 and 2005. It confirmed it was in talks to sell the stake on November 19.
UBS advised CP Group, the source said. UBS declined to comment.
HSBC had two non-executive seats on Ping An's board.
Ping An trades at 2.2 times book value, 33 per cent below its five-year median price to book value ratio, according to data from Thomson Reuters StarMine. Shares of Chinese insurers have come under pressure on concerns over increased competition and big impairment losses from a sluggish domestic stock market.
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 about 500,000 agents.
The Ping An deal is Asia's second-biggest acquisition so far this year, behind Chinese oil company CNOOC's planned $15.1-billion purchase of Canada's Nexen.
As part of its Ping An investment, CP Group agreed to hold any shares it buys for at least six months, HSBC said.