Carlyle ensures major exit with China Pacific

The company appointed China International Capital Corp (CICC) as lead underwriter, while UBS, Goldman Sachs and Credit Suisse are also helping to arrange the share sale.

Carlyle invested $400 million for 25% of the insurer in 2005. The expected IPO exit has been pending for over five years, most recently floated in March 2008, but was successively postponed in the face of difficult capital environments, as well as reported internal disagreements within the company. In addition, China Pacific did not until now meet the requirement for IPO applicants set up by China Securities Regulatory Commission, to make a profit for three consecutive years prior to listing, because the company made a loss in 2004, prior to the Carlyle investment.

All the same, China Pacific had a domestic IPO in Shanghai about two years ago, raising $4.1 billion. Prior to this, Carlyle exchanged its 24.9% stake in the life insurance subsidiary for a 19.9% stake in its Shanghai-based parent, China Pacific Insurance, bringing the total investment up to $740 million. Post the Shanghai IPO, Carlyle’s stake shrunk to 17.3 %; the US firm then increased its stake in China Pacific Insurance (Group) Co. to a combined 19.9% through a new share placement in May.

Thanks to consistent economic growth in China, the PRC insurance market grew to a total of RMB978 billion ($143 billion) of insurance premiums by 2008, increasing some 39% from 2007, the fastest annual growth since 2002. Based on China Pacific's share price in Shanghai, the original investment Carlyle made is now worth over $5 billion, and the likely returns will ease pressure on the firm to return capital to investors.

The insurer earlier said that it will not sell shares under RMB30 ($4.3) which was the price for the Shanghai IPO, but it also expects a slightly lower valuation in Hong Kong. The PRC regulator has approved a listing at as low as RMB23.52 ($3.44).

Some analysts noted that dual listings in Shanghai and Hong Kong often see the latter trading lower, but other analysts told AVCJ that the share price will be calculated based on the average price for the last 11 trading days in Shanghai before the planned Hong Kong IPO. Also, no firm information on the planned IPO has been released, one noted.   

Carlyle’s investment thesis aimed to emulate China Life Insurance and Ping An Insurance, the No.1 and No.2 largest players in China, which went public in 2003 and 2004, together raising over $5 billion.

Meanwhile, the PRC government allows Chinese insurance companies to invest up to 25 % of their assets in stocks and mutual funds, so there will be further opportunities for Chinese insurers to reap returns. China Pacific Insurance said in a statement that premiums of its life insurance subsidiary reached RMB 35.2 billion ($5.1 billion) in 1H09, while premiums from its asset insurance subsidiary were RMB18.6 billion ($2.7 billion).

 

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• Topics
• Exits
• Greater China
• Financials
• The Carlyle Group