CDB Cancels Loans for Ping An Deal
(Beijing) – The Hong Kong branch of China Development Bank (CDB) has been ordered by its Beijing headquarters to cancel loans that would have been used to finance an acquisition involving the nation's second largest insurer, a source from the bank said.
The source said the decision was reached because of a Caixin report over the problematic financing of the deal.
The bank had intended to lend HK$ 44 billion to Thai business conglomerate Charoen Pokphand Group (CP). CP planned to acquire HSBC's entire 15.57 percent stake in Ping An Insurance Co. for US$ 9.4 billion, or HK$72.7 billion.
The deal was to be completed in two phases. The first was carried out on December 7 and the second was awaiting approval from China Insurance Regulatory Commission (CIRC). The deadline was February 1.
CP has said that the second tranche of payment, which would have been HK$57.3 billion, would be partly financed by loans from the CDB's Hong Kong branch.
But the bank's headquarters has issued a risk warning to its Hong Kong office regarding the loan, which effectively calls it off, the source said.
He added that the decision was made because of a Caixin report that two-thirds of the first payment was actually supplied by a group of mainland investors led by businessman Xiao Jianhua and the rest from former Thai prime minister Thaksin Shinawatra.
It was also found that Xiao had leveraged his connection to tap funds from three municipal commercial banks in northern China.
Xiao denied his involvement in the transaction in a statement on December 23. CP said the same day that it had raised funds for the deal through legal means, including loans from CDB.
But a 2010 policy from CIRC stipulates that bank loans and other non-proprietary capital should not be used to acquire a stake in insurance companies. It also states that the equity of an insurance company should not be held by any person or institution on trusteeship.
Hong Kong-based South China Morning Post reported earlier on Tuesday that CDB was weighing its decision to back the Ping An deal.
CP Group had total net assets of US$ 9 billion as of 2011. It focuses on agribusiness, retail and telecoms, and was founded by Thailand's wealthiest person, Dhanin Chearavanont. In 2007, CDB offered CP Group a credit line of 100 billion yuan and US$ 10 billion for its business in rural China and overseas M&A deals, which wasn't tapped by CP before its expiration date in April 2012.
CDB's Hong Kong branch was set up in 2009 and has outstanding loans totaling HK$ 250 billion.
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