HSBC Holdings plc
) has divested its entire stake (15.6%) in Chinese insurance
giant Ping An Insurance (Group) Company of China, Ltd to
Thailand-based Charoen Pokphand Group for an estimated $9.4
billion (HK $72.7 billion). HSBC expects to earn a post-tax gain
of $2.6 billion on the sale after deducting the carrying value of
investment in Ping An and the reclassification of the connected
foreign exchange and other reserves.
The divestiture will be carried out in two phases. The first
stage involves transfer of 21% of the shares to the acquirer on
December 7, 2012. The remaining 79% shares will be transferred on
January 7, 2013, after the deal gets a nod from the Chinese
regulatory authority - China Insurance Regulatory Commission.
Charoen Pokphand will fund the proceeds partly in cash and partly
through loan obtained from China Development Bank.
Last month, HSBC announced that it was contemplating divestiture
of its stake in Ping An. Back in 2002, HSBC had initially
purchased a 10% stake in Ping An for an amount of $600 million.
In the period between 2002 and 2005, the company acquired another
5.6% stake in Ping An for a sum of $1.7 billion. It is noteworthy
that HSBC's 15.6% stake in the company reflects 40% of its Hong
Kong-traded shares held by the former.
HSBC, under its new CEO, has resorted to aggressive restructuring
since 2011. The restructuring involves streamlining its worldwide
operations by shedding non-core assets to boost profitability.
Ping An stake sale is a part of this strategy. Earlier this year,
HSBC traded its general insurance businesses in Asia and Latin
America for $914 million. The company is divesting its general
insurance units in Hong Kong, Singapore, Argentina and Mexico to
Australia's QBE Insurance Group Ltd. and France-based AXA Group
in two separate deals.
HSBC is also looking to sell its 18% stake in Vietnamese insurer,
Bao Viet Holdings. Moreover, it is assumed that eventually the
company might sell its 19% stake in Bank of Communications - the
fifth-largest bank in China (in terms of assets).
HSBC is not the only company disposing its non-fundamental
operations. In October this year, Netherlands-based
ING Groep NV
) announced the sale of its Malaysian insurance business to Asian
insurance giant, AIA Group Ltd, for nearly $1.7 billion (€1.3
billion). ING also announced the divestiture of its
insurance business, pension and financial planning divisions in
Hong Kong and Macau, as well as its life insurance operations in
Thailand to Pacific Century Group for a total of $2.14 billion
(€1.64 billion) in cash.
The sluggish economic backdrop and the deepening Euro zone crisis
have forced HSBC to reorganize its business strategy. We believe
that these restructuring efforts will go a long way in
controlling HSBC's rising expenses and enhancing its overall
HSBC currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we maintain
a long-term 'Neutral' recommendation on the stock.
HSBC HOLDINGS (HBC): Free Stock Analysis
ING GROEP-ADR (ING): Free Stock Analysis
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