China's insurance regulator is set to reject Charoen Pokphand Group's proposed US$9.4 billion purchase of HSBC Holding Plc’s stake in Ping An Insurance Group Co on concerns the group may not be able to fund the acquisition, the <i>South China Morning Post</i> reported.
The China Insurance Regulatory Commission has doubts CP Group can afford the purchase and is "increasingly concerned” about whether the Thai company is the real buyer, the Hong Kong- based newspaper said on Wednesday, citing unidentified people close to the CIRC.
Dhanin Chearavanont (Reuters photo)
Charoen Pokphand (CP) should "do more to explain where and how it will get the money" for the purchase, especially if the government-owned China Development Bank, or CDB, is not providing the funding, the Post said, citing one of the people. The deadline for the CIRC's approval is Feb 1, the Post said.
Ping An's Shenzhen-based spokesman Sheng Ruisheng did not answer a call to his mobile phone, while calls to Charoen Pokphand’s corporate communications department went unanswered before office hours. Gareth Hewett, a spokesman for HSBC in Hong Kong, declined to comment.
Ping An fell by the most in more than five months in Hong Kong trading yesterday, dropping 4% to HK$68.15, after a media report said the CDB halted loans for Charoen Pokphand's purchase. The company's American depositary receipts fell 4.6% to $17.31 in US over-the-counter trading on Tuesday. Each ADR represents two common shares.
Xinhua News Agency published on Monday said that the bank halted the loan worth HK$44 billion (around 172 billion baht) as early as mid of December after finding that funds for the deal were coming from businessman Xiao Jianhua whose source of his financing is in question.
HSBC, Europe's biggest bank by market value, said Dec 5 it agreed to sell its 15.6% stake in Ping An to Thai billionaire Dhanin Chearavanont as it moves to revive profit and boost capital.
Caixin reported last month that about two-thirds of the first payment of the deal came from Chinese investors and that Ping An’s management may have helped finance the Chinese backers, which both the insurer and Charoen Pokphand denied at the time.
CP Group issued a statement in Dec, 2012 indicating that the stake was sold to four of the group's wholly owned subsidiaries: Tongying Maoyi Co Ltd, Longfu Group Co Ltd, Shangfa Konggu Co Ltd and Yisheng Fazhan Co Ltd.
The deal, advised by Siam Commercial Bank, will receive financial support from the China Development Bank's Hong Kong branch. Ping An provides casualty, property and life insurance as well as financial services.
"CP wants to clarify that all four buyer companies are subsidiaries wholly owned by CP, and such acquisition deals are legitimately financed by CP, CP's shareholders and subsidiaries,'' the group said.
CIRC Vice Chairman Chen Wenhui said he was not happy with "how the game was played," in reference to the deal, the South China Morning Post reported on Wednesday, citing one of the people close to the regulator.
CDB, a policy lender, halted the loans after issuing a risk warning in December and notified the CIRC, Caixin reported yesterday. The Post had a similar story on Tuesday.
The deal is “in normal approval process," Ping An's Sheng said in an e-mailed statement on Tuesday, without elaborating, in response to an inquiry about the story on CDB’s withdrawal of funding. Sheng earlier called Caixin's report last month "irresponsible."
According to The Wall Street Journal, CP's tender is to buy HSBC's 15.6% stake in Ping An at the value of about US$9.39 billion. If successful, HSBC will get a windfall of approximately US$2.6 billion from its exit.
The paper said CP Group's purchase will be done in two phases. The first phase was a 3.24% stake funded with cash, which was already settled on Dec 7. The second tranche would be funded by a loan from China Development Bank.