HSBC Holdings plc
) divestiture of its entire stake (15.6%) in Chinese insurance
giant Ping An Insurance (Group) Company of China, Ltd to
Thailand-based Charoen Pokphand Group has come to an unexpected
halt after China Development Bank (CDB) expressed concerns
regarding the funding for the deal.
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In December 2012, HSBC agreed to sell the Ping An stake to
Charoen Popkhand for an estimated $9.4 billion (HK $72.7
billion). The deal was to be completed in two phases. The first
phase involved the successful transfer of 21% of the stake on
December 7, 2012. The remaining 79% shares were to be transferred
on January 7, 2013, after the deal got approval from the Chinese
regulatory authority - China Insurance Regulatory Commission
Charoen Pokphand was funding the proceeds partly in cash and
partly through loan obtained CDB. Though Charoen Popkhand
successfully executed the 21% stake buyout on December 7, soon
questions regarding the financing of the deal started doing the
It was speculated that individual investors, other than the Thai
conglomerate, had provided the funds for the Ping An deal. This
contradicted the guidelines laid down by CIRC, which prohibited
bank loans and other non-proprietary capital to be used for
acquiring a stake in insurance companies. Further, it stated that
any person or institution on trusteeship could not hold the
equity of an insurance company.
The problematic financing of the deal has prompted CDB to
reconsider its decision of financing the deal, leading to an
abrupt halt. The deal would have fetched HSBC a post-tax gain of
$2.6 billion on the sale after deducting the carrying value of
investment in Ping An as well as the reclassification of the
connected foreign exchange and other reserves.
HSBC, under its new CEO, has resorted to aggressive restructuring
since 2011. The reshuffle involves streamlining its worldwide
operations by shedding non-core assets to boost profitability.
Ping An stake sale was a part of this strategy. The possible
fallout of the deal would mean a major setback to the company's
HSBC currently retains a Zacks Rank #5, which translates into a
short-term Strong Sell rating. However, other stocks in the
financial sector that are performing well and are worth
AllianceBernstein Holding L.P.
Heartland Financial USA Inc
). These companies carry a Zacks Rank #1 (Strong Buy).