Bloomberg News

China Life, Ping An Pay $1.4 Bln for Minsheng Stock

March 19, 2007

China Life Insurance Co. (2628) and Ping An Insurance (Group) Co. (2318), the nation's two largest insurers, paid a combined 10.8 billion yuan ($1.4 billion) for about 10 percent of China Minsheng Banking Corp., whose shares more than tripled last year.

China Life and Ping An each paid 5.4 billion yuan for 600 million shares, Minsheng Bank said in a statement today. The Beijing-based lender raised 18.16 billion yuan selling 2 billion shares to seven corporate investors.

Chinese insurance companies are investing their 599 billion yuan of cash to help bolster profits as demand for policies cools. China Life today said insurance premium growth sputtered in the first two months of this year.

``China's insurance companies have too much money and they have a relatively long investment horizon, so the banking sector presents the best opportunity,'' said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi International. Buying into Minsheng Bank also enables China Life and Ping An to expand their distribution networks, she said.

Cao Qingyang, a spokesman for China Life, said Minsheng is already helping the insurer sell policies, adding that volumes so far have been ``relatively small.'' Ping An spokesman Sheng Ruisheng called the Minsheng stake a ``pure financial investment'' and said the companies currently have no plans for further cooperation.

Minsheng Shares Jump

Minsheng Bank, which has about 260 outlets, said yesterday 2006 profit rose 43 percent as the fastest economic growth in 11 years fueled demand for loans. It forecast a 38 percent gain in profit this year, to 5.3 billion yuan.

Shares in Minsheng jumped 9.6 percent today at the 11:30 lunch break in Shanghai, advancing along with other banks after the central bank yesterday raised interest rates. The stock is up 19 percent this year after surging 252 percent in 2006.

Minsheng, founded 11 years ago by 59 investors including pig-feed tycoon Liu Yonghao, averaged 40 percent annual gains in profit in the past five years. It has carved out a niche among medium-sized companies such as China Small and Medium Enterprise Investment Co. and East Hope Group.

China's insurers are allowed to hold stakes of 5 percent or more in a maximum of two banks. China Life's and Ping An's 4.99 percent holdings in Minsheng Bank fall just below that threshold.

Finance Empire

Shenzhen-based Ping An is seeking to build a financial services group that will get two-thirds of its revenue from banking, securities and asset management. For the six months ended June 30, those businesses accounted for about 8 percent of Ping An's net income.

The government in 2005 allowed insurers to buy stakes in commercial banks, prompting Ping An and China life to embark on purchasing sprees.

On March 15, Ping An said 2006 profit probably jumped more than 50 percent, driven by investment returns from the strongest stock market rally in at least a decade. China's benchmark stock index soared 121 percent last year.

The company last year bought 89 percent of Shenzhen Commercial Bank and raised its stake in Shanghai Pudong Development Bank Co. to 4.94 percent from 1.8 percent. Last month, HSBC Holdings Plc said Ping An was buying its 27 percent stake in subsidiary Ping An Bank.

Investment Returns

China Life last year bought a 20 percent stake in Guangdong Development Bank for 5.67 billion yuan, gaining access to 500 banking outlets to sell its insurance and investment products.

The nation's insurers had 2 trillion yuan of assets as of Dec. 31, of which 1.18 trillion yuan was invested in stocks, mutual funds and bonds, according to China Insurance Regulatory Commission. They had 599 billion yuan of cash parked in banks.

Slowing premium growth is adding pressure on insurers to use those funds to prop up returns. China Life today said insurance premiums rose 13 percent in the first two months of 2007 from a year earlier. That's a third of the growth pace in the year-ago period.

China's insurers returned 5.8 percent on their investments last year, 2.2 percentage points more than in 2005, according to the China Insurance Regulatory Commission. The companies profited from a doubling in stock prices on the mainland.

Insurers own 30.5 percent of the yuan shares of Industrial and Commercial Bank of China Ltd., the nation's biggest lender, and 23.2 percent of Bank of China's, according to the regulator.

Other Buyers

China this year allowed banks to apply for permits to set up insurance units, ending a 14-year-old ban. Bank of Communications Ltd. and China Construction Bank Corp. are among lenders which have applied with the government to set up insurance ventures.

Shanghai Jiante Life Technology Co., New Hope Investment Co., China Fanhai Holdings Co. and Everbright Securities Co. also bought into Minsheng Bank's private placement, today's statement said.

To contact the reporter on this story: Luo Jun in Shanghai at jluo@bloomberg.net.

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net


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