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In Chinese deals, it ain’t over till it’s over

HSBC and Thailand's richest man may have a happy Chinese new year after all. Regulators on Feb. 1 approved the sale of the U.K. lender's remaining stake in Chinese insurer Ping An to Thailand's CP Group. Rejigging the financing allowed the Thais to rescue a sweet deal and HSBC to avoid an embarrassing flop. But the apparently happy ending leaves much to be explained.

The two-stage deal, which was agreed in December, ran into trouble after Chinese media raised questions about the ultimate source of the funds for CP Group's initial $1.9-billion (U.S.) purchase. This prompted doubts about the involvement of China Development Bank, which had committed to finance much of the second $7.4-billion chunk. That in turn raised questions about whether the China Insurance Regulatory Commission, which dislikes investors buying shares with borrowed money, would block the deal.

The revised transaction, which the CIRC waved through hours before it was due to expire, saves face all round. CP Group, which is controlled by billionaire Dhanin Chearavanont, will now fund the entire second leg with its own cash. That allows it to rescue the lucrative deal, which was struck at $59 Hong Kong ($7.58) per share. With Ping An shares now trading at $70.85, it is sitting on an immediate paper profit of almost $1.9-billion (U.S.) – a 20-per-cent gain. HSBC, meanwhile, avoids the embarrassment of failing to seal a deal in the country it is supposed to know better than any other Western bank.

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Yet the saga leaves many questions unanswered. The main mystery is where CP Group found the cash. Even a company that claims annual revenue of more than $30-billion is unlikely to have over $7-billion simply lying around. A more likely explanation is that it borrowed against some of the unlisted group's other assets.

Another question is how the CIRC overcame its initial doubts. Though CDB's withdrawal appears to have helped, political motivations can't be ruled out. After all, the family of departing Chinese Premier Wen Jiabao is reported by the New York Times to have amassed a substantial stake in Ping An.

For HSBC and CP Group, such lingering questions will be outweighed by the relief of completing the deal. For investors, it's a reminder that deals involving Chinese companies are rarely straightforward.

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