Dec 25, 2012 02:38 PM

Anatomy of an Odd, Hands-Off Deal for Ping An


(Beijing) – Thailand's richest man, a former prime minister and a Chinese tycoon with close ties to banks in three cities have stepped out of the shadows to close a mysterious deal involving a major stake in Ping An Insurance Co.

The unusual collection of financiers backed by Ping An executives for their hands-off promises emerged a few weeks after London-based HSBC said December 5 it would end its 10-year-old relationship with the insurer – one of China's largest – by selling its entire 15.57 percent stake for US$ 9.4 billion, or HK$72.7 billion.

The buyers were initially identified as four companies linked to the Thai conglomerate Charoen Pokphand Group (CP), which focuses on agribusiness, retail and telecommunications and was founded by that country's wealthiest individual, Dhanin Chearavanont.

But questions about financing quickly surfaced based on CP's capital position: The company, with total net assets of US$ 9 billion as of 2011, simply could not afford the full price without a little help.

CP responded to the chatter by announcing that the deal would receive financial backing from the Hong Kong branch of China Development Bank, a state-owned policy institution with which the Thai company enjoys a more than 100 billion yuan line of credit.

Several CDB officials, however, said the bank wasn't involved in the transaction's first tranche for about 3 percent of Ping An and worth HK$ 15.2 billion. The payment was made December 7.

Still pending is the second phase of the deal, involving a more than 12 percent stake. HSBC and Ping An are waiting for a green light from China's insurance regulators. CP Group said CDB Hong Kong will provide part of the finance for the second tranche. 
The first payment to HSBC was wired from a CP bank account. A Caixin investigation has found that one-third of the cash, however, came from former Thai prime minister Thaksin Shinawatra. Supplying the rest was a group of mainland investors led by financier Xiao Jianhua.

Caixin learned Xiao raised his part of the cash by tapping three, municipal commercial banks in northern China with whom he enjoys close ties: Harbin Bank in Heilongjiang Province, Weifang Bank in Shandong and the Baoshang Bank in Baotou, Inner Mongolia.

But a lawyer representing Xiao released a statement December 23 denying his client was involved in any way with the deal between HSBC and CP.

A CP statement that day in Chinese insisted the transaction and funding arrangements were legal. But the legality issue was not mentioned in the English version of the statement.

Seeking Allies

Neither CP nor Xiao are strangers to Ping An, as each has been deeply involved in the insurer's employee shareholding vehicles since May.

These vehicles form the backbone of Ping An's financial structure and are in the hands of company management via three holding companies – Xinhaoshi, Jiangnan Shiye and Jingao Shiye. Together, they manage Ping An stock on behalf of employee unions, managers, consultants and a group of insurance agents.

The shareholding structure first rolled out in 1992 has been revamped over the years, and most recently has served as a performance incentive for staffers at all levels including executives. This incentive system is considered key to Ping An's effective business operations.

Ping An shares have been listed on the Hong Kong Stock Exchange since 2007. A lock-up period for shares floated in the company's initial public offering expired in 2010. Under pressure from Ping An employees who wanted to sell as soon as the lock-up ended, Xinhaoshi and Jingao have been cashing out over the past two years, opening a way for Xiao's involvement in the company.

As employee shareholding declined in recent years – and non-company investors bought stock – Ping An executives have sought ways to maintain their grip as key company shareholders. To that end, they have looked for financial allies willing to buy shares but who had no interest in managing the company nor intervening in executive decisions.

To facilitate sell-offs and take advantage of favorable tax policies, the shareholding firms moved their legal registrations to Tibet from Shenzhen in 2010, and became Tibet's largest tax payers in 2011. The moves also laid the groundwork for CP and Xiao to buy stakes.

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