Banking & Finance

Looking for cover

New World buys FTLife as ‘China’s Berkshire Hathaway’ unloads assets


New World boss Henry Cheng

Underpinned by Chinese investors wanting to park some of their spare cash offshore in life insurance coverage, many of the recent takeovers of the Hong Kong units of a number of insurers have come from mainland buyers.

Yunfeng Financial, backed by Alibaba’s founder Jack Ma, spent $1.6 billion on Massachusetts Mutual Life’s Asia unit in 2017. A few months earlier Tencent, another internet giant, made a strategic investment in Aviva Life. A year before that Dah Sing Life was bought by Fujian-based property firm Thaihot for $1 billion.

The tide turned last month as NWS Holdings, a listed unit of Hong Kong property conglomerate New World Development, agreed to pay $2.75 billion for FTLife from Beijing-based private equity firm Jiuding Capital.

With about 2,800 agents and back-office staff, FTLife is a relative minnow. Yet its sale set a record price in the insurance sector for a Hong Kong acquirer, at almost two times the $1.38 billion Jiuding spent in 2015 to take over Ageas, which became FTLife.

The change in ownership partly reflects the policy headwinds in China, where the central government has been tightening rules that prevent capital being moved out of the country.

The broader campaign to deleverage the financial system, as notes, has also forced overly-acquisitive firms to monetise some of their best assets to pay down debt.

Jiuding was founded in 2007 by Wu Gang, a former official with the China Regulatory Securities Commission (CSRC), the stock market regulator. His time working as a watchdog seems to have helped Jiuding secure lucrative deals and quick exits in the IPO market, Caixin Weekly reported. In 2014 Jiuding became the first private equity (PE) firm to go public on Beijing’s over-the-counter New Third Board, or NEEQ. A year later its market value topped Rmb100 billion ($14.6 billion) – becoming the most valuable firm on the board. It then expanded into Hong Kong by taking over Ageas and began positioning itself as ‘China’s Berkshire Hathaway’.

But the Ageas deal seems to have marked a watershed of sorts for Jiuding’s fortunes. It suspended its shares from trading in June 2015, pending the announcement of “a major asset restructuring”.

Few investors could have envisioned that this suspension would last for more than a thousand days. The moratorium finally ended last March when Jiuding put out a circular confirming that it was under investigation by the CSRC. In the next two trading days its share price took a 75% dive.

The PE firm has since gone into deleveraging mode, notes. “Jiuding is no longer calling itself China’s Berkshire Hathaway,” the news portal says. “Instead it is under pressure to offload top quality assets such as FTLife.”

NWS’s willingness to pay a top price for FTLife suggests that Jiuding made the right call on Hong Kong’s flourishing insurance market – it just lacked the financial muscle to keep hold of its trophy asset.

Backed by the Cheng family, one of Hong Kong’s richest property clans, NWS has been diversifying into new businesses including kindergartens, eSports, fertility centres and now insurance. The family also controls Chow Tai Fook, one of the world’s biggest jewellery retailers. It runs more than 2,800 shops, most of them in mainland China, with plans to open 1,000 more over the next three years.

But even the most powerful Hong Kong conglomerates can find life challenging across the border. According to Changjiang Times, New World Department Store, a sister company of NWS, is struggling. Net profit shrank more than 97% over the past five years and it has just closed its biggest department store in Wuhan. (For more on New World’s 25-year presence in Wuhan, download our Sinopolis city guide from our website.)

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