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The partnership between HSBC Holdings and Ping An Insurance, once a much-told success story, seems to be coming to an end. The two companies recently announced that HSBC Holdings planned to sell all its H shares in Ping An. According to sources, the offer is likely go to Thailand-based Chia Tai Group.
As a saying goes, “there are no permanent enemies, only permanent interests,” which rings relevant for HSBC Holdings and Ping An, who joined hands a decade ago and broke up due to declining synergy.
HSBC Holdings’ entry into Ping An was a successful move. Ten years ago, Ping An was still a pawn in the game. Then HSBC Holdings managed to buy into Ping An at roughly 2 yuan ($0.32) per share. It now holds 1.23 billion H shares and is the biggest shareholder of the company, accounting for 39.39 percent of the total H shares and 15.57 percent of the total issued share capital.
As Ping An is evolving into a full-fledged player, the market value of the shares held by HSBC Holdings has quintupled. Among all the candidate offers, Chia Tai Group has prepared to take over the shares at a premium of$HK60 ($7.74) per share.
Without HSBC Holdings as an incubator in its early years, Ping An could not morph into a financial magnate it has become from its humble beginnings as a small firm. The business talent and risk control system transplanted from HSBC Holdings have been the two reasons why Ping An rose in the insurance world.
But now the marriage is heading for break up. On the surface, it appears HSBC Holdings decided to end the partnership. Since Stuart Gulliver became CEO of HSBC Holdings two years ago, the company began selling its non-core assets around the globe in order to concentrate on its own key commercial and banking businesses. Ping An was a desirable sell off.
More importantly, in June 2011, the Basel Committee on Banking Supervision announced an increase in the required ratio of additional paid-in capital of the Global Systemically Important Banks. In early November, sources said the G-20 might jack up the ratio to 2.5 percent, the upper limit. Without a doubt, banking giant HSBC Holdings is among the banks accepting the new requirement. Selling out Ping An shares will solve its pressing need for money.
Regarding foreign investment in China, and especially concerning the country’s big four state-owned commercial banks, a hidden rule can be found: Foreign financial institutions often team up with Chinese companies as strategic investors or longterm stakeholders, and then withdraw as financial investors.
The difference lies in speculation and investment. In most cases, foreign capital arrives under the pretext of helping to alleviate fund pressure and speculates in the name of investing.
As for Chinese financial institutions, only those whose stock rights have long-term value can attract foreign investors. Nevertheless, when the investors get into trouble or huge profits can be reaped, these once-generous strategic investors always show a speculative nature.
The evolution of Ping An and the streamlining of HSBC Holdings mirror a constantly changing financial world, where domestic companies rise should-to-shoulder with international giants. Free competition rather than administrative protection can better arouse the vitality of financial enterprises and facilitate the healthy development of the financial industry. Chinese financial institutions should not expect foreign investors to hold onto their shares in the long term.
As a saying goes, “there are no permanent enemies, only permanent interests,” which rings relevant for HSBC Holdings and Ping An, who joined hands a decade ago and broke up due to declining synergy.
HSBC Holdings’ entry into Ping An was a successful move. Ten years ago, Ping An was still a pawn in the game. Then HSBC Holdings managed to buy into Ping An at roughly 2 yuan ($0.32) per share. It now holds 1.23 billion H shares and is the biggest shareholder of the company, accounting for 39.39 percent of the total H shares and 15.57 percent of the total issued share capital.
As Ping An is evolving into a full-fledged player, the market value of the shares held by HSBC Holdings has quintupled. Among all the candidate offers, Chia Tai Group has prepared to take over the shares at a premium of$HK60 ($7.74) per share.
Without HSBC Holdings as an incubator in its early years, Ping An could not morph into a financial magnate it has become from its humble beginnings as a small firm. The business talent and risk control system transplanted from HSBC Holdings have been the two reasons why Ping An rose in the insurance world.
But now the marriage is heading for break up. On the surface, it appears HSBC Holdings decided to end the partnership. Since Stuart Gulliver became CEO of HSBC Holdings two years ago, the company began selling its non-core assets around the globe in order to concentrate on its own key commercial and banking businesses. Ping An was a desirable sell off.
More importantly, in June 2011, the Basel Committee on Banking Supervision announced an increase in the required ratio of additional paid-in capital of the Global Systemically Important Banks. In early November, sources said the G-20 might jack up the ratio to 2.5 percent, the upper limit. Without a doubt, banking giant HSBC Holdings is among the banks accepting the new requirement. Selling out Ping An shares will solve its pressing need for money.
Regarding foreign investment in China, and especially concerning the country’s big four state-owned commercial banks, a hidden rule can be found: Foreign financial institutions often team up with Chinese companies as strategic investors or longterm stakeholders, and then withdraw as financial investors.
The difference lies in speculation and investment. In most cases, foreign capital arrives under the pretext of helping to alleviate fund pressure and speculates in the name of investing.
As for Chinese financial institutions, only those whose stock rights have long-term value can attract foreign investors. Nevertheless, when the investors get into trouble or huge profits can be reaped, these once-generous strategic investors always show a speculative nature.
The evolution of Ping An and the streamlining of HSBC Holdings mirror a constantly changing financial world, where domestic companies rise should-to-shoulder with international giants. Free competition rather than administrative protection can better arouse the vitality of financial enterprises and facilitate the healthy development of the financial industry. Chinese financial institutions should not expect foreign investors to hold onto their shares in the long term.