Ping An, Beggars Cup in Hand, Looks Worrisome

At one point, Ping An Insurance (HKEx: 2318; Shanghai: 601318), the country’s No. 2 insurer, was the talk of the  town, with ambitious plans to become a diversified financial services company similar to Citigroup (NYSE: C). Now it looks like that vision may be closer to the truth than many realized. With cup in hand, Ping An has gone to the market for cash and come back with $2.5 billion from a Hong Kong investor, who now becomes a 3.5 percent owner of the company. (English article) Investors didn’t like the sale at all, which came at a discount, and dumped Ping An shares big time after the announcement. Granted, Ping An now has a big bank under its belt and thus may feel compelled to follow China’s other big banks in raising more money to cushion its balance sheet against a potential downturn in the real estate market. Given Ping An’s location and domination in Guangdong and particularly the boomtown of Shenzhen across the Hong Kong border, I see rough times ahead for the company when the downturn comes, which could hit Shenzhen especially hard.

Bottom line: Ping An’s recent cash call is a worrisome sign, as it braces for rough times ahead due to its big exposure in the real estate market of southern boomtown Shenzhen