Ping An Group's Acquisition of 30% Stake in Shenzhen Development Bank Approved

Market, page 20, issue 458, March 1, 2010
Translated by Wang Hailin
Original Article: [Chinese]

This article is not a direct translation from the Chinese original, some extra details, that were announced after publication, have been added.

References to the likelihood of Ping An first privatizing and then delisting SDB in order to merge it with their own banking arm have also been omitted after denials of such a plan were announced by the company on March 1, 2010.

The translation was amended on March 5, with removal of references to any privitization plans.  

Despite denials from the two companies involved, China's biggest ever acquisition deal looks like it might be going ahead. Ping An Insurance (Group) Company of China, Ltd  (here after referred to as Ping An Group), the world's second-biggest life insurer by market value, has reportedly received approval from the State Council to acquire a 30 percent stake in Shenzhen Development Bank (SDB).

Ping An Group responded to the EO's report on Monday by publishing a statement in Shanghai Securities News emphasising its plan to acquire a controlling 30 percent stake in the Shenzhen-listed bank has yet to be approved by the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC).

"Ping An is still going through the regulatory review process," Ping An spokesman Sheng Ruisheng was quoted as saying in the Wall Street Journal.

He went on to add that the company had no additional information at present and that he thought "it's too early to discuss a merger with Shenzhen Development Bank before we complete the current plan."

"Regarding the privatization issue, the report is totally wrong," he added.

The Shenzhen Stock Exchange halted trading in Shenzhen Development Bank on Monday.

What's Delaying the Approval?

Details of the State Council approval of Ping An's acquisition of a 30 percent stake in the company were leaked after Sun Jianyi, Vice-President of Ping An and the Chairman of Ping An Bank revealed  the information at a bank event in late February.

Sun made the remarks at a Chinese New Year event hosted at the Ping An Bank's Shenzhen branch on Feb 20. Sun revealed that Ping An's acquisition of a controlling stake in SDB had already been approved by the State Council going on to add that once the Shenzhen branches of the two banks were merged, they would become the leading bank in the area.

It's already been close to 8 months since Ping An first announced its intention to invest in SDB.

They have until April 30, 2010 to finalize the deal.

According to people familiar with the matter, the acquisition received in-principle approval from the State Council on the eve of the Spring Festival, but the details of how the transaction will be managed are still to be decided by the China Banking Regulatory Commission (CBRC).

According to the deputy director of a large commercial bank, "as the acquisition involves mixed financial operations and foreign capital (the current majority shareholder in SDB is a branch of American private equity firm TPG Inc.) and other sensitive matters, it's likely that the regulators will approach the deal with caution, however, as the State Council has already approved it, over the coming two months, the CBRC, the CSRC and the CIRC will all give their approval.

Given the long delay in the approval process, the three regulators no doubt disagreed on issues related to the deal. However, as they've had such a long time to talk the problems out, they should have already reached some kind of compromise by now.

A person close to the CIRC said that the regulatory body's position is already quite clear, it will act in accordance with the decision of the State Council, and once the deal has been officially approved, it's possible that it won't seek further involvement in the process.

However, the greater Ping An group will still be regulated by the insurance watchdog.

CIRC's prudent but generally positive approach to the deal differs from the banking regulator which is much more cautious. Worried about possible risks, it has not reached a final position as how best to deal with specific issues of  regulatory authority after any kind of merger takes place.

Another insider revealed that  "the question of the transaction as a whole is not really the issue, not even the technical details about how the merger will be executed,  the most important this is that the regulators need to reach an agreement. The delay in the approval of the deal may have been caused by the more conservative attitude of CBRC."

The above source emphasised that the SDB itself is not such a big bank, additionally some related departments see the deal as a chance to test out proposals to merge more banks and insurance companies and there aren't any systematic bottlenecks effecting the deal either.

Given the merger will involve the revaluation of the market value of a listed company, China's stock market regulator, the CSRC, is also taking a wary approach to the deal.

If the deal does go throught, Ping An Group will have a 30 percent stake in SDB while at the same time holding more than 90 percent of Ping An Bank's shares.

This situation, in which the controlling stakes of two banks are held by one company, is not permitted under current banking regulations, regulatory authorities have already indicated to Ping An, that once they have acquired a stake in SDB, they have 3 years to solve the problem.

Links and Sources
Ping An: Official Site (English)
Shenzhen Development Bank: Announcement in Response to EO Report (English)
Ping An: Announcement of Plan to take 30 percent stake in SDB (English)