China’s PICC Group to Raise up to $4 Billion in Hong Kong IPO

By Elzio Barreto & Clare Baldwin | November 15, 2012

Chinese state-owned insurer PICC Group started meeting institutional investors in Hong Kong on Thursday to gauge demand for a listing worth up to $4 billion, braving a slump in equity deals with the city’s largest IPO in two years.

People’s Insurance Company of China Group (PICC), one of the country’s largest insurers, will offer 6.9 billion new shares in the IPO, equivalent to a 16.7 percent stake in the company, said a source with direct knowledge of the plans who was not authorized to speak publicly on the matter and declined to be named.

IPO issuance in Hong Kong has plunged more than 80 percent so far this year, with volumes likely to shrink to their lowest since 2008 as investors shun new deals because of volatility caused by Europe’s debt troubles.

“It is definitely not the best time to come to market, but capital has been a pressing issue for the group for some time,” said Stanley Tsai, an insurance analyst in Hong Kong. “The group will need capital urgently to support its growth ambitions, particularly on the life side.”

“The company will have to price the IPO at a considerable discount to peers in order to generate enough interest from institutional investors,” he added.

The IPO would be the biggest in Hong Kong since the $20.5 billion listing of AIA Group Ltd in October 2010.

The company will start taking orders from investors during a roadshow due to start on Nov. 22, with pricing of the IPO expected on Nov. 29, the source said.

About 50 percent of the IPO is covered by commitments from cornerstone investors, including financial institutions, Chinese corporates and other strategic investors, sources with direct knowledge of the plans said.

LARGE CLIENT BASE
PICC, the biggest property and casualty insurer in China and the fifth-largest life and health insurer, had planned to go public in a dual Shanghai and Hong Kong offering worth up to $6 billion. It decided to move ahead with a Hong Kong listing first after the Shanghai portion of the deal failed to gain approval from Chinese regulators, who are concerned about weak stock market conditions on the mainland.

Founded in 1949, PICC is China’s first nationwide insurer and has 2.42 million institutional insurance clients and about 130 million individual insurance customers, exceeding the entire population of Japan.

The company is controlled by China’s Ministry of Finance, with an 88.7 percent stake, while the National Social Security Fund (NSSF) holds the remaining 11.3 percent.

PICC’s revenue grew at an average annual rate of 22.5 percent from 2009 to 2011, reaching 236.3 billion yuan ($37.96 billion) in 2011 and 136.2 billion yuan [$21.84 billion] in the six months ended in June 2012, according to its preliminary prospectus.

The company posted net profits of 7.9 billion yuan [$1.267 billion] in 2011 and 7.14 billion yuan [$1.145 billion] in the six months to June.

PICC hired a record 17 banks to help underwrite the IPO. The company is the parent of China’s largest property insurer, Hong Kong-listed PICC Property & Casualty Co.

China International Capital Corp (CICC), Credit Suisse Group AG, Goldman Sachs Group Inc and HSBC Holdings Plc won mandates as sponsors of the deal. The list of banks also acting as bookrunners includes Morgan Stanley and UBS AG, as well Chinese firms such as ABC International and BOC International.

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