Much of the world is watching China’s hunt for global resource M&A, which looks set to accelerate in 2012, but a completely different piece of news caught my eye this morning from leading oil producer PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR), which has just announced a new venture in the completely unrelated insurance sector. (company announcement) PetroChina made headlines earlier this week with the announcement that it was buying out its partner in a Canadian oil sands project, the latest in a recent string of global acquisitions for the company and its rivals as China looks to feed its hungry economy and make itself more energy self-sufficient. (English article) But the insurance announcement seems to have gone relatively unnoticed by many major media, even though it looks rather large to me with registered capital of nearly $1 billion. Perhaps people are unimpressed by the fact that PetroChina’s partner in the venture is its state-run parent, which will hold a controlling 51 percent stake, meaning this is really just a nominal joint venture since both partners are part of the same company. It’s also a bit disappointing to see that while the venture will sell insurance in many popular areas, such as health and property, one area that’s not on the list is the most lucrative life insurance sector, meaning industry leaders China Life (HKEx: 2628; Shanghai: 601628; NYSE: LFC), Ping An (HKEx: 2318; Shanghai: 601318) and New China Life (HKEx: 1336) may not need to worry about new competition anytime soon. While this move looks a bit strange on the surface, I find it quite intriguing and perhaps even intelligent as PetroChina looks for ways to diversify beyond its core oil exploration business, which is famously subject to huge price swings globally and strict price controls at home by Beijing. I suspect that formation of this joint venture is just the first step, and that we may soon see PetroChina try to bring in a more experienced partner from the financial services sector to help it run the venture by the end of this year. If it does take that route, the right combination of PetroChina’s deep pockets and a savvy financial services partner could make this new endeavor a serious competitor in the insurance space in the next 2-3 years.
Bottom line: PetroChina’s move into insurance looks like a smart diversification play if the company can find a good partner from the financial services sector to develop the business.
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◙ 2012: The Year of China Resource M&A? 2012：中国企业的资源并购年？
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