HSBC's $9.4B Ping An deal in jeopardy

People are seen inside of a branch of Ping An Insurance in Shanghai on November 26, 2012.

Story highlights

  • HSBC's $9.4B sale of its stake in China's Ping An Insurance has been thrown into doubt
  • People with knowledge of the deal said a Chinese state-owned lender had changed its mind
  • HSBC had expected to book a profit of about $3B on the sale of its stake in Ping An

HSBC's $9.4bn sale of its stake in China's Ping An Insurance has been thrown into doubt after Thai buyer CP Group lost funding for some of the 15.6 per cent shareholding.

CP Group, which had already bought 3.2 per cent in the Chinese insurer from the UK bank, was planning to part-fund the balance with loans from China Development Bank. But people with knowledge of CDB's plans said the Chinese state-owned lender had changed its mind, presenting a major obstacle to completion of the deal.

One of the people said that CDB financing will "100 per cent not happen". A second person said that "unless someone really senior tells them to go ahead and do it, they are not going to do it".

HSBC had expected to book a profit of about $3bn on the sale of its stake in Ping An, China's second-biggest insurer by assets, making the deal an important part of its strategy to strengthen its balance sheet. A similar gain is likely to be booked even if the second phase of the deal does not happen, bankers said, because the stake will now be treated as an "available-for-sale" shareholding.

Shares in Ping An fell 4 per cent in Hong Kong on Tuesday after the South China Morning Post first reported that CDB was reconsidering its decision to finance the transaction. HSBC shares remained flat in London.

CDB's shift followed local Chinese media reports about the complexity of the deal. According to the announcements, CP Group was to fund the first part of the acquisition -- nearly 21 per cent of HSBC's stake in Ping An -- with its own cash and pay for the remaining 79 per cent with a mixture of cash and CDB financing.

The payment for that initial 21 per cent tranche was made in early December but Caixin Century Weekly, a Chinese financial magazine, subsequently claimed that one-third of the money had come from Xiao Jianhua, a low-profile but well-connected Chinese financier. Mr Xiao has denied the report through his lawyer. CP Group has said that its funding arrangements for the deal were legal.

    But one person familiar with the matter said the report about Mr Xiao's possible involvement prompted CDB to reconsider. The person added that CDB had only provided verbal support for the deal and had not signed a contract.

    CP Group is known to have had good relations with CDB, which offered credit lines of more than $10bn in 2007 to help the Thai conglomerate expand in China.

    State-owned CDB has a mandate to lend in support of official policy. The bank's head, Chen Yuan, is the son of a revolutionary leader and is one of the country's most powerful dealmakers.

    Analysts had reacted with surprise when the news first surfaced that CP Group -- the unlisted flagship of the agribusiness, retail and telecoms conglomerate controlled by Thai tycoon Dhanin Chearavanont -- might buy HSBC's stake in Ping An. CP Group has net assets of more than $9bn, roughly the same size as the stake it is attempting to buy.

    But the question of how it could fund the deal had been thought to be resolved when HSBC announced that CP Group would receive financing from CDB, a signal that top Chinese officials regarded the deal favourably.

    CP Group said: "At the moment we don't have any comment; any statement from us would have to be okayed by HSBC and Ping An as well, and this would take time."

    CDB could not be reached for comment. HSBC declined to comment.

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