China has approved the sale of HSBC's remaining $7.5-billion stake in Ping An Insurance to a group controlled by Thailand's richest man, giving the green light to the country's biggest inbound M&A deal.
For HSBC Holdings PLC, the sale marks its exit from a decade-long interest in China's second-biggest insurer and books it a $2.6-billion post-tax gain from selling what it no longer considers a core asset.
Approval by the China Insurance Regulatory Commission (CIRC) had been in doubt after media reports last month raised questions over the Thai group's funding for the deal.
Charoen Pokphand Group (CP Group), controlled by septuagenarian billionaire Dhanin Chearavanont, bought HSBC's 15.6-per-cent stake in Ping An in December for $9.4-billion, agreeing to pay up front for around a fifth of that stake last month, and the rest, backed by state-run China Development Bank, on approval by the Chinese regulator.
The first payment was supposed to be funded by wholly-owned CP subsidiaries, but local media reports said people not directly tied to the Thai food conglomerate were behind the deal, prompting China Development Bank to voice its concerns. The bank would likely not want to anger Beijing by being involved in facilitating a non-mainland investment in Chinese stocks.
The transfer of the second tranche of shares to CP Group will be completed on Wednesday, HSBC said in a filing.
"If, after all this news, CIRC approved the deal, it indicates (the regulator) is comfortable that CP will be the holder. This will remove the overhang on the Ping An share price," said Edmond Law, a China insurance analyst at UOB Kay Hian.
Payment for the shares was made in cash, HSBC and CP Group said in separate statements, raising questions over whether China Development Bank was involved in the deal.
The Thai group has interests spanning poultry and animal feed, supermarkets and auto making, and has a long history in China as the first multinational to invest in the country's agri-business in 1979. It was later tasked with helping to modernise China's farm sector.
The Ping An deal was Asia's second-biggest acquisition in 2012, behind Chinese oil firm CNOOC Ltd.'s planned $15.1-billion purchase of Canada's Nexen Inc. Founded in 1988 as China's first joint-stock insurer, Ping An has grown into one of the world's largest, with 74 million clients, more than 175,000 employees and an army of some 500,000 agents.
The sale is part of HSBC's global strategy of divesting non-core assets to improve profitability. Analysts have noted Ping An provided steady income for HSBC, but the capital boost from the sale should underpin dividend prospects and offer greater flexibility as regulators in Europe act tougher on banks' capital requirements.
Ahead of the Ping An sale, HSBC had already sold about $6.7-billion worth of assets, according to Thomson Reuters data, including non-life insurance operations and retail banking branches in places such as Thailand and the United States.
HSBC, Europe's biggest bank, sold the Ping An stake for HK$59 per share, for a total of HK$72.74-billion ($9.4-billion). The deal, given its size, was an important and sensitive sale for HSBC, and was personally overseen by CEO Stuart Gulliver, said a person with direct knowledge of the matter.
HSBC, which spent $1.7-billion building its Ping An stake between 2002-05, also has a 19.9 per cent interest in Bank of Communications, China's fifth-largest lender, and owns 8 per cent of unlisted Bank of Shanghai and 62 per cent of Hong Kong's Hang Seng Bank, which in turn owns 13 per cent of China's Industrial Bank.