Chinese real-estate developer Evergrande Group may sell its life insurance business to raise cash in a bid to address the liquidity crisis.
Evergrande Group owns a 50% stake in the Evergrande Life Assurance company, which could fetch $600m at 0.5 times its book value, Bloomberg reported citing analyst Steven Lam.
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The real estate developer, which is currently over $300bn in debt, had acquired a stake in the life insurer in 2015.
The insurer was previously called the Great Eastern Life Assurance Company (GELC) and Evergrande bought the shares held by the Chongqing City Construction Investment (Group) and the Chongqing Land Group.
Notably, Evergrande Life Assurance’s market share has grown nine times since 2015 and it has recorded profitable growth in the last four years, the report added.
The deal seems very promising; however, the life insurer has sacrificed its solvency ratio in favour of the rapid expansion.
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By GlobalDataAt the end of June this year, Evergrande Life Assurance’s solvency ratio stood at 110%, which is less than half of the 239% average of six large rivals, the publication wrote citing Lam’s note.
Lower numbers mean that the buyer may have to pump an additional $2.2bn to push the ratio beyond 200%.
Lam noted that Evergrande Life Assurance’s premium income in China in 2020 was more than AIA Group’s but it is more inclined toward less profitable products.
The life insurance firm was established in 2006 in partnership with the Chongqing and Singapore governments.
It was regarded as the only Sino-foreign joint venture life insurer based in western China.
