Ping An Insurance (Group) Company of China, Ltd. (hereafter “Ping An” or “the Group”, HKEX: 2318; SSE: 601318) recently announces its Board has approved a capital planning proposal for the issuance of Convertible Bonds (CB) in the A-share market for a total amount of no more than RMB26 billion. The proposal is subject to approval by the Group’s shareholders at an Extraordinary General Meeting (EGM) and approval by regulatory authorities including the China Insurance Regulatory Commission (CIRC) and the China Securities Regulatory Commission (CSRC). The implementation of the proposed issuance will depend on market conditions as well as the progress of regulatory approval.
China is one of the most promising insurance markets in the world with the most growth potential. Over the past two decades, Ping An has successfully seized this rare market opportunity. Leveraging its sound corporate governance framework, a first-class corporate structure and system, competitive business model and a culture of excellence, Ping An seeks to create significant value for all of its shareholders, investors, customers, employees and the community. The financing plan aims to help the Group further seize opportunities, better deploy its capital, enhance financial strength, improve its ability to weather market risks and to develop its business in a sustainable manner. It will facilitate the rapid and healthy development of the Group’s three key major businesses: insurance, banking and investment, and will help lay a stronger foundation for the Group to grow to become a leading integrated financial group in the world, bringing greater and sustainable returns for its shareholders and investors.
The total amount of the CB will be not more than RMB26 billion. The actual size of the issuance shall be determined by the Board (or the persons authorized by the Board) within the above scope. The term of the CB will be six years from the date of issuance, with an interest rate of not more than 3%. The proceeds from the issuance of the CB, after deduction of the expenses relating to the issuance, will be used to replenish the working capital of the Group to support its business development, as well as for other purposes approved by CIRC (including but not limited to replenishing the capital base to improve the solvency margin of the Group after obtaining approval from CIRC). Such proceeds will be used to replenish the capital base of the Company after conversions conducted by CB Holders. The proposal will be submitted for approval at the Group’s EGM to be held on 8th February 2012.
The Group chose this scope and method of financing after having carried out careful deliberation in a responsible manner. The proposal has taken into account various factors such as market conditions, the interest of shareholders, the Group’s development needs, as well as the timing for regulatory approval.
A great deal of researches and analyses have proved that convertibles are considered to be one of the most effective tools for raising capital in a volatile market as they are defensive in nature while offering upside potential. They have the smallest impact on the market, are less dilutive for existing shareholders and are widely accepted by investors as a valid financing tool under the current market environment conditions. The CB market in China currently is relatively flushed with capital, and where investors are relatively enthusiastic about the instrument. These factors will provide support for the CB market in terms of capital funding.
Since its listing in 2004, the Group has consistently achieved sustainable growth and created value for its stakeholders through the careful deployment of capital. Ping An’s total assets grew to RMB2,189.4 billion as at September this year from RMB182.7 billion in 2003, standing for an increase of 11 times or a compound annual growth rate (CAGR) of 37.8%. Net assets grew to RMB121.1 billion from RMB14.9 billion over the same period, up by 7.1 times, or a CAGR of 31.1%. Net profit increased by 7.2 times to RMB17.3 billion in 2010 from RMB2.1 billion in 2003, a CAGR of 35.1%. Revenue grew to RMB189.4 billion from RMB66.6 billion over the same period, representing a CAGR of 16.1%. Furthermore, the Group’s embedded value experienced rapid growth from the end of 2003 to the first half of 2011, reaching a CAGR of 39.7%. At the same time, the Group’s average ROE had grown to 13.9% since its listing. The Groups takes its responsibility for generating shareholder returns seriously, and has maintained a policy of relatively high dividend ratio of about 37.1% on average.
In 2011, Ping An was able to maintain a steady growth momentum despite the volatile financial markets at home and around the world. As at 30 September 2011, its total assets stood at RMB2,189.4 billion, up 86.9% compared to the beginning of the year. In the first three quarters, the Group had strengthened its profitability and recorded attributable income of RMB14.5 billion, up 13.8%. Its insurance business generated income of RMB160 billion over the same period, an increase of 32.9%. The Group completed its major asset restructuring plan with Shenzhen Development Bank, allowing it to realize nationwide coverage in its banking business, which contributed profit of RMB5, 300 million in the first three quarters of the year. The Group’s securities and investment banking business retained its market-leading position. In the first three quarters of 2011, the Group’s trust and private wealth management business achieved income of RMB1,100 million, a substantial jump of 152.8%.
As the Group’s integrated financial services platform takes shape, the scale of its various business segments continue to grow at a relatively rapid pace, resulting in a corresponding increase in pressure to maintain its solvency ratio. As at 31 October 2011, the Group’s solvency ratio was 170.7%, while those for its subsidiaries Ping An Life and Ping An Property & Casualty were 153.2% and 171.0%, respectively.
Based on the financial figures as at 31 October 2011, it is estimated that the Group’s solvency capital and solvency ratio will reach RMB208.9 billion and 194.9%, respectively, assuming all of the RMB26 billion CB proposed are exercised.