China’s Insurance Regulator Expected to Reject $9.4 Billion HSBC Deal

By | January 9, 2013

China’s insurance regulator is expected to reject HSBC’s sale of its $9.4 billion stake in Ping An Insurance to Thai conglomerate CP Group, media reports said on Wednesday.

The failure of the deal would be a blow to HSBC and an embarrassment to the various parties involved in a corporate deal that was set to be Asia’s second-largest last year.

The China Insurance Regulatory Commission (CIRC) is likely to veto the deal due to a lack of funding, the South China Morning Post and The Wall Street Journal both said on Wednesday.

Reuters on Tuesday said that the deal was in jeopardy after state-backed China Development Bank had expressed concerns over its financing. According to the story, CDB’s reluctance emerged after media reports late in December that said CP Group’s payment for the deal came from outside sources.

A $1.9 billion payment by CP subsidiaries was made on Dec. 7 as a first instalment for the deal, with the shares then transferred to CP Group, according to HSBC. Payment for the remaining amount was due after regulatory approval, which had a deadline of Feb. 1.

CDB originally agreed to back the remaining purchase, though HSBC did not disclose the size of the loan. CDB withdrawing from the process would be a major setback for the sale, but would not necessarily kill the agreement if another funding source could be found before that deadline.

A CIRC rejection, however, would stop the second instalment and effectively end the deal.

A CIRC official told Reuters on Wednesday that there is no final outcome yet on a decision.

A spokesman for Ping An said the sale was moving ahead with normal approval procedures, while HSBC declined to comment.

Doubts over the deal’s closing surfaced after the respected Chinese magazine Caixin Century Weekly reported late last month that CP Group received funding for the first payment from outside sources, naming Chinese businessman Xiao Jianhua as being among the backers.

CP Group said in a statement in December after the Caixin report that the acquisition of the Ping An shares had been legally conducted by four wholly-owned subsidiaries using “legal capital from the Charoen Pokphand Group and its subsidiaries.”

A representative at a law firm representing Xiao referred Reuters to a previous statement from him denying any involvement in the CP-HSBC deal.

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