Ping An Insurance announced this week that it had built up its stake in HSBC Holdings (00005.HK) to 5.01 percent and become the banking giant’s second-largest shareholder, next only to Blackrock which owns a little less than 7 percent.
Interestingly, HSBC used to be the largest shareholder of Ping An before the latter’s Hong Kong IPO in 2004. It once held up to 19.99 percent of the Chinese insurance firm.
Now, things are turning the other way round and it is possible that one day Ping An could become the largest shareholder of HSBC.
Let’s take a look at the historical relationship between the two firms.
In October 2002, HSBC spent HK$4.7 billion to acquire 10 percent stake in Ping An Insurance. The deal valued the latter at HK$47 billion. Both parties signed a strategic cooperation deal and HSBC sent two senior officials to Ping An’s board. Also, HSBC and Ping An agreed to cross sell each other’s products.
The Chinese insurance giant raised HK$16.5 billion in Hong Kong in June 2004, and its market value soon spiked to nearly HK$100 billion afterwards. HSBC kept adding to its position and eventually increased its holdings to the official limit of 19.99 percent in May 2005.
Many expected HSBC to boost its stake further to become a controlling shareholder once China relaxed the cap on foreign ownership.
That didn’t happen, largely because in 2008, HSBC was badly hurt during the financial crisis and was busy raising funds to strengthen its capital base.
Ping An, meanwhile, went on to issue more shares amid an expansion push, and HSBC’s stake in the Chinese insurer got diluted to 15.57 percent.
Then in 2012, HSBC sold its entire stake in Ping An to a Thailand conglomerate for HK$72.74 billion.
It’s estimated that London-based bank grossed a staggering profit of HK$58.6 billon on the investment.
If HSBC had held on to its shares, the asset would be worth a lot more now. Currently, Ping An’s market value has soared to HK$1.37 trillion. The insurance giant was managing up to 6.17 trillion yuan of assets as of the end of September.
HSBC has staged a steady recovery since 2012, and its share price also rebounded to around HK$76 currently from a low of HK$59 in early 2012.
Given its handsome dividend yield of around 5.2 percent, a price to book ratio of just 1.05 times and good earnings performance, it’s not surprising that Ping An sees the bank as a good investment target.
The insurance firm revealed that it accumulated HSBC’s Hong Kong-listed shares via the cross-border Stock Connect Program.
This article appeared in the Hong Kong Economic Journal on Dec 8
Translation by Julie Zhu
[Chinese version 中文版]
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