Ping An Returns to Market With Second Big Fund Request 中国平安拟发大规模可转债

There’s some troubling news coming from the insurance sector, where Ping An Insurance (HKEx: 2318; Shenzhen: 601318), the nation’s second largest insurer, has announced a plan to raise up to 26 billion yuan, or more than $4 billion, through the issue of convertible bonds to shore up its capital base. (English article) The move comes just 8 months after Ping An raised another $2.5 billion through a private placement in Hong Kong (previous post), meaning it will have raised more than $6 billion this year. Ping An said in announcing the latest fund-raising plan that the money would be used to replenish its capital, as it cited the Eurozone debt crisis and economic uncertainty at home for the move. It’s hard to comment too much without seeing a detailed list of Ping An’s investments, but the company, second only to China Life (HKEx: 2628; Shanghai: 601628; NYSE: LFC) in the domestic insurance market and ahead of recently listed New China Life (HKEx: 1336; Shanghai: 601336), is known as a relatively aggressive player in the industry. Accordingly, I wouldn’t be surprised if it has unusually high exposure to China’s stock market, which has lost 20 percent this year, and to funding for the thousands of infrastructure projects launched by local governments under Beijing’s 4 trillion yuan stimulus plan during the global financial crisis. Industry watchers say many of those infrastructure projects were dependent on land sales to repay loans, but with China’s real estate market showing signs of a major correction many local governments may have trouble selling land to make their repayments. Likewise, China’s stock market’s tumble to 2-year lows means Ping An may have to take some big write downs for its stock investments as well. In many ways, the troubles now being faced by Ping An look a lot like those faced by China’s big banks, which all raised major capital 2 years ago after a 2009 lending spree that left their portfolios bloated with questionable real estate and infrastructure deals. Insurance companies aren’t subject to the same requirements as banks and have more diversified investments, which may explain why Ping An could wait longer to raise its funds. Given all the weakness in markets both in and outside China, I wouldn’t be surprised to see similar fund raising in the next few months by even more conservative insurers like China Life.

Bottom line: Ping An’s new $4 billion capital raising plans reflects trouble in the insurance industry, where companies face exposure to weakness in China’s real estate and stock markets.

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