China Ink

A new ‘policy’ bank

Insurance giant, Ping An’s Rmb22 billion ($3.2 billion) deal to buy a 30% stake in Shenzhen Development Bank (SDB) stirs debate.

Did Ping An overpay?

The Chinese media, quoting extensively from research analysts, seems to think that Ping An is overpaying – which is why the insurer’s stock fell 14% after the deal’s announcement. At Rmb18.26 per share, the price represents 19 times Shenzhen Development Bank’s 2009 earnings – whereas the China’s big three banks are trading at an average 13.3 times expected earnings.

So Capital Week agrees it is a “premium price and probably too much” and questions whether Ping An is making the same mistakes it made on its Fortis acquisition.

The nationalist fringe has also weighed in, angered by Newbridge’s massive profit on its $300 million investment (it will receive $1.68 billion from Ping An). “It continues the legend that foreign companies investing in China’s financial sector never lose,” concludes the China Times.

The foreign media is less concerned by the price. Reuters quotes analysts who think the deal will benefit Ping An in the long run, especially in becoming “an all-in-one financial services group, with balanced growth in insurance, banking and asset management.” Plus it thinks it only natural to have to pay a premium – since the 30% stake gives Ping An control.

The Wall Street Journal also regards Ping An as “a natural buyer for the stake” and Ping An’s president, Louis Cheung talked of a “fair price” in an interview with Bloomberg, for a national bank “with a very good quality business.”

The Economist meanwhile seems to think Newbridge deserves every penny of its profit, having bought SDB when it was a “basketcase” with NPLs of 14% and turned it around.

Should Ping An even be doing deals after the Fortis disaster?

But should Ping An even
be doing deals after its
Fortis disaster?

Ping An lost $3 billion in an earlier investment in the European banking group, in what Securities Daily regards as the company’s first attempt to get into the “spotlight.” Unfortunately all the lights went out “leaving Ping An in the dark, the ending tragic.”

But Caijing thinks that lessons have been learned. It quotes a Chinese proverb – ‘Once bitten by a snake, forever scared of rope’ – but says Ping An is wise to ignore the idiom and try again.

Wang Xiangwei, in his South China Morning Post column, recalls that Ping An had “vowed to focus on the domestic market” after the Fortis debacle. That vow is being kept. And the Economist thinks it a much better deal than the previous investment in “a now dismantled European bank”, especially as Ping An has the advantage of adequate funds to grow SDB, and also enjoys good relations with local regulators.

Can Ping An manage the merged entity?

Capital Week worries that Ping An doesn’t have much experience running a bank. “Can it keep the SDB executives is a key question,” it asks.

Clearly the proof will be in the pudding, but Ping An’s CEO, Peter Ma is confident that his firm’s “professional talent” will not let him down. “What I can promise is we won’t use insurance people to run the bank,” he tells Caijing.

The foreign press likes the addition of SDB’s 300 branches, as Ping An Bank currently operates only in Guangdong province with 60 branches. Reuters also mentions the new cross-selling opportunities. Ping An’s Cheung tells Bloomberg that the insurer’s clients have an average age below 40 and the deal will allow them to better serve this group as their assets grow in the coming 20 years.


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