People’s Insurance Company (Group) of China, the nation’s largest property insurer, is seeking as much as HK$27.8 billion ($3.6 billion) in what may become Hong Kong’s biggest initial public offering in more than two years.
The insurer will offer about 6.9 billion shares at HK$3.42 to HK$4.03 apiece, according to a regulatory filing in Japan today. The highest price values PICC Group at about 113 billion yuan ($18 billion), said two people with knowledge of the IPO, asking not to be identified as the information is private.
The IPO would be the largest in Hong Kong since October 2010, when AIA Group Ltd. (1299) sold $20.5 billion of shares, and more than double the $3.2 billion raised by companies in the city this year, data compiled by Bloomberg show. Investors have stayed away from new equity amid an economic slowdown in China, discounting a 15 percent gain in the benchmark Hang Seng Index this year.
“Even though we’ve seen some inflows into the market, this kind of money is not too eager to enter the IPO market,” said Steven Leung, institutional sales director at UOB Kay Hian Ltd. “This close to the year-end, not too many institutions would like to get involved in such a big issue. Market sentiment is not favorable.”
The 44 companies that priced shares in Hong Kong this year are down almost 9 percent, on average, data compiled by Bloomberg show. The value of funds raised in new share sales this year is down from $15 billion in the same period last year, and the lowest since at least 2001, data compiled by Bloomberg show.
PICC Group has commitments for about $1.85 billion of shares from so-called cornerstone investors, including American International Group Inc. (AIG:US) which will invest $500 million, two people with knowledge of the matter said. Cornerstone investors typically agree to hold shares for a fixed period of time in exchange for a guaranteed amount of the offering.
Though the cornerstone investors will make PICC’s sale easier, the company may still find it a challenge to reach the high end of its offering range, Leung said.
“The rest depends on how aggressively they’re going to place the stock,” he said.
The Beijing-based company is the biggest property insurer in China with 147 billion yuan in premium income for the first nine months of this year, according to the website of China Insurance Regulatory Commission.
Excluding its already listed property insurance business, the price range values PICC Group at 1.18 times to 1.63 times the estimated 2012 embedded value of its life and health insurance business, one person said. That compares with 1.6 times at China Life Insurance Co., the nation’s biggest life insurer, and 1.3 times at Ping An Insurance (Group) Co., the person said.
The new shares will account for about 16.7 percent of PICC Group’s enlarged share capital, one person said. China’s Social Security Fund acquired 11.3 percent of PICC Group for 10 billion yuan in June last year, according to a statement on the fund’s website. That transaction valued the insurer at about 90 billion yuan.
PICC Group expects a premium to the 90 billion yuan valuation because the pension fund bought its shares at a discount, people with knowledge of the matter said Nov. 12.
PICC Property & Casualty Co. (2328), which was listed in Hong Kong in 2003, has a market value of HK$121 billion. Its shares are down 6 percent this year.
The company has the option to increase the offering by as much as 15 percent if demand is sufficient, which would enable PICC Group to raise as much as $4.1 billion, one person said. The insurer plans to set a final price on Nov. 30 and begin trading in Hong Kong on Dec. 7, according to a filing this month.
Also among PICC Group’s cornerstone investors are China State Grid Corp., which will invest $300 million, China Life Insurance Co., which will invest $100 million, and Tokio Marine Holdings Inc. (8766) and Zijin Mining Group Co., which will invest $50 million apiece, people said today.
China International Capital Corp., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., and HSBC Holdings Plc, are all global coordinators for the share sale, one person said.
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