HSBC said it was in talks to sell its $9.3 billion stake in China's Ping An Insurance, stepping up a program by Europe's biggest bank to shed non-core parts of its business to boost profitability.
HSBC spent $1.7 billion to build up a 15.6 percent stake in China's second-largest insurer in 2002 and 2005, but a sale has been widely expected as part of its three-year recovery plan in the wake of the 2008 financial crisis and regulatory reforms.
In a statement to the Hong Kong Stock Exchange, the bank confirmed it was in talks to sell the stake, adding that a sale may not result. The statement followed a Monday report on the sale talks by the Hong Kong Economic Journal, a Chinese language newspaper, naming Thai tycoon Dhanin Chearavanont, Thailand's richest man, as a potential buyer.
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 core to its day-to-day business operations.
"This makes sense for HSBC because it's 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 owns 19.9 percent of Bank of Communications (BoCom), China's No.5 lender, worth about HK$79 billion ($10.2 billion), according to Thomson Reuters data.
HSBC will record a pre-tax profit of up to $6.5 billion if it sells the Ping An stake, according to estimates from Mizuho Securities analyst Jim Antos.
This would help boost its Tier One capital ratio up to 13.6 percent from about 13.1 percent currently, although 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 onto the market at one time," Antos said.
A sale would require approval from China's insurance and banking regulators, narrowing the list of possible buyers, as Chinese authorities have traditionally allowed only financial groups to take stakes in the country's major banks and insurers.
Another challenge to a HSBC-Ping An sale is the $4 billion IPO of Chinese insurer, Pacific Insurance Company of China Group (PICC), which could steal strategic buyers that may have otherwise acquired HSBC's Ping An stake.
The sheer size of the deal also makes a sale to any single buyer difficult. 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 a roughly 2 percent stake of Agricultural Bank of China.
The Hong Kong Economic Journal named Thai tycoon Chearavanont, who owns the unlisted Chaoren Pokphand (CP) group that is Thailand's largest food and agricultural business, as a potential buyer of Ping An shares. Dhanin is worth $7.4 billion according to Forbes.
CP Group was not available for comment. Dhanin could not be reached.
PING AN SHARES FALL
Shares of Ping An, the world's second-largest life insurer by market value, fell to near a two-month low on the sale news, while HSBC's stock nudged up 1 percent. Ping An's market capitalization is $52.55 billion, according to Thomson Reuters.
The Chinese government has frowned upon large divestitures by Western institutions from Chinese companies, as it indicates the partnership is no longer fruitful. But HSBC has been exiting non-core businesses since Chief Executive Stuart Gulliver laid out his plans in May 2011 to boost profitability.
Europe's biggest bank has since sold or wound down various businesses including its non-life insurance operations, releasing over $55 billion in risk-weighted assets, according to the bank.
Earlier this year, HSBC sold its general insurance business to French insurer AXA and Australia's QBE Insurance Group Ltd. According to a Reuters report, the bank is also close to selling its 18 percent stake in Vietnamese insurer Bao Viet Holdings.
HSBC bought a 10.1 percent stake in Ping An for about $600 million in 2002. In 2005, it paid another $1.1 billion to raise its stake to 19.9 percent. This was watered down to 15.6 percent when it declined to subscribe to a Ping An rights issue in 2010.
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