The Revaluation of Ping An

By Zhao Juan, Ouyang Xiaohong
Published: 2008-10-28

From Market page 22 issuing 390 October 22 2008
Translated by Liu Peng
Original article:

nlike its name would suggest, China's Ping An Insurance hasn't been sailing on smooth seas this year.

By October 28th, Ping An's A-share stock price had plummeted below 21 yuan per share from its peak of 112 yuan earlier this year.
Much of the stock's recent decline came after October 5, when it made an impairment provision effectively writing down the value of a nearly 5% stake in Fortis, a Belgo-Dutch financial group, by up to 15.7 billion yuan (USD 2.29 billion).

By October 16th, Fortis' stock price had tumbled to 0.87 euros per share, much lower than Ping An's initial purchase price of 19 euros per share. As a result, the book value of Ping An's nearly 24 yuan billion investment in Fortis earlier this year, which netted a 50% stake, was reduced to less than 1 billion yuan.

According to Ping An Securities Company's estimation, the nearly 16 billion yuan impairment provision would likely lead its stock to drop by 3 yuan per share. Many analysts told to EO that the losses wouldn't jeopardize Ping An's overall financial health.

In Hong Kong, investment banks like Goldman Sachs were unmoved by the investment provision and maintained their present credit rating on Ping An. In the first half of 2008, it made over 7 billion yuan in profits.

But Guotai Jun'an Securities said that taking into consideration the provision, Ping An would likely see losses of up to 6 billion yuan in the third quarter. If Ping An continues to make impairment provisions, it would be completely in the red for 2008.

Wang Xiaogang, a senior analyst at Orient Securities, a domestic securities broker, told the EO that whether or not Ping An would make further provisions still depended on the performance of it's net assets in the third quarter and any further drop in Fortis's stock price.

Affected by Fortis's slump, Ping An's return on investment would likely much lower than expected, said Wang Xiaogang.

However, a source from Ping An told the EO that the investment losses in Fortis wouldn"t shake the firm to the bone, adding the systemic risk was difficult to predict despite their extremely detailed investment review process.

"On the one hand, we weren't thorough enough, but on the other, [the investment] is being affected by the worsening environment."