Joining a steady stream of
Chinese life insurers seeking to bolster their depleted capital
resources, Ping An, China’s second-largest life insurer, has
announced plans to issue up to CNY26bn ($4bn) through a convertible
bond issue.
Shares traded in China are A
shares. Foreigners can only buy B shares.
Go deeper with GlobalData
“The CB [convertible bond]
market in China is currently relatively flush with capital, and
investors are relatively enthusiastic about the instrument,” the
insurer noted in a statement.
The move to raise additional
capital follows Ping An’s acquisition in July 2011 of a 52.4% stake
in SDB in Shenzhen Development Bank which entailed a cash payment
of CNY2.69bn by Ping An. Following the acquisition, Ping An was
also obliged to take a one-off, negative CNY1.952bn accounting
adjustment.
Ping An’s convertible bond
will have a term of six years and carry an interest rate of not
more than 3%.
According to Ping An, its
solvency ratio at the end of October 2011 stood at 170.7%.
Following the convertible bond issue, the solvency ratio will rise
to 194.9%, assuming an issue of CNY26bn.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataPing An’s proposed capital
raising follows hard on the heels of the completion of a CNY30bn
subordinated bond issue by China’s largest life insurer China Life
in November 2011.
The 10-year bond has an
annual coupon rate of 5.5% for the first five years. after which
China Life has the option to redeem the bond. If it does not use
this option, the coupon rate will increase to 7.5% for the second
five years.
According to Xinhua, China’s
official news agency, the bond issue by China Life is likely to be
followed by further capital raising initiatives by the
insurer.
Ping An and China Life are
not alone in their quest for additional capital. According to Joyce
Huang, director at rating agency Fitch’s Asia-Pacific insurance
team, insufficient internal capital generation has made external
funding capabilities essential in supporting the solvency of
Chinese life insurers.
She explains that the sharp
decline in Chinese listed equity values is of particular
concern.
“Chinese life insurers have
mainly relied on investment income for profits and their investment
performance is sensitive to stock market fluctuations,” says
Huang.
“Substantial marked-to-market
losses in equity investments undermined Chinese life insurers’
profitability and capitalisation in 2010 and the first half of
2011.”
Continued weakness of Chinese
listed equity in the second half of 2011 will have possibly
weakened the capital position of some insurers further, she
adds.
Indicative of pressure on
insurers’ capital, the key Shanghai Stock Exchange Composite Index
fell by 20% in the second half of 2011 and by 22% during the year
as a whole.
Taking even harsher
punishment, Ping An’s share price on the Hong Kong Stock Exchange
ended the year 41% down while China Life’s share price ended 40%
lower.
Huang points out that to
boost their capital, a number of unlisted life insurers have
followed the same route as China Life by issuing subordinated
debt.
However, she stresses that
because of the generally short tenor of subordinated debt it can be
viewed as only a stop-gap solution. Issuers of subordinated debt in
China generally redeem the debt within five years or less to avoid
interest step-up provisions, she notes.
Equity issues would clearly
provide a long-term solution. However, the overall, level of
investor enthusiasm for potential new equity capital raising
exercises by Chinese insurers appears to be decidedly
muted.
This was highlighted by the
outcome of the initial public offer (IPO) by New China Life (NCL)
on the Hong Kong and Shanghai stock exchanges in December 2011.
NCL, China’s third-largest life insurer, raised $1.9bn in the IPO
which was originally targeted to raise up to $2.3bn.
NCL’s IPO was also pitched at
the lower end of its indicative price range – HK$28.50 ($3.67) per
share for the Hong Kong Stock Exchange tranche.
Hardly a roaring success, NCL’s Hong Kong-listed shares
ended 2011 9.8% down on their issue price at HK$25.70.
