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HSBC strikes canny deal with sale of Chinese insurer

HSBC has proved a canny seller of Chinese assets. The emerging market lender announced on Dec. 5 it had sold 16 per cent of Ping An at a premium to the market price. That's impressive: Rivals Bank of America and Goldman Sachs accepted discounts when offloading their Chinese bank shareholdings. The positive reaction should buy HSBC some time to explain its broader China strategy.

HSBC's decision to sell was not surprising. Chief executive Stuart Gulliver has been pulling the bank out of the insurance business. There was a huge profit to be captured too: HSBC's investment cost just $1.6-billion (U.S.), compared with the selling price of $9.4-billion.

But finding a buyer palatable to the Chinese authorities, who need to approve the deal, can not have been simple. Charoen Pokhpand, a company controlled by Dhanin Chearavanont, Thailand's richest man, is a far from an obvious choice – its main business is agriculture. But as a big player in China, it has cash flows that should help finance the China Development Bank loan it is using to part-finance the purchase.

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This allowed HSBC to strike a deal at $59 Hong Kong ($7.55) per share, a premium to Ping An's closing price the day before HSBC first announced it was considering a sale. By contrast, Bank of America sold a big chunk of its shares in China Construction Bank 11 per cent below the market price. In April, Goldman Sachs sold a 4-per-cent stake in ICBC to Singapore's Temasek at a 3-per-cent discount.

The accounting gain from the sale, which will add 50 basis points to HSBC's already-strong core Tier 1 capital ratio, should buy the bank some time to explain its China strategy, including the benefits of its 20-per-cent stake in Bank of Communications, which it has committed to keep.

There may even be another benefit: Selling out of Ping An, which also has a securities arm, may give HSBC a renewed opportunity to pursue its own securities licence in China, something most of its rivals attained long ago. The bank will now have to prove it can be an equally good buyer as it is a seller.

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