Ping An Insurance (Group), the nation's second-largest insurer, is increasing its stake in Shenzhen Development Bank to nearly 30 percent from the under 5 percent it holds now through a 22 billion yuan deal.
The deal is part of Ping An's efforts to transform itself as a financial supermarket offering the entire range of financial services like money changing, insurance, securities and fund management, under one roof.
"The acquisition will help us provide one-stop services to our customers through a single account," Louis Cheung, president, Ping An, said in a conference call on Sunday.
To prevent the cross-sector risks, China requires banking, insurance and securities units to operate under three independent supervisory bodies.
However, to achieve better synergies across different sectors like wider network, bigger customer base and more sales channels, financial firms are increasingly bolstering their cross-sector business by stake investments.
China Life, the country's largest insurer and Ping An's rival, is also planning to transform itself into a financial holding group with diversified businesses. After acquiring a 20 percent stake in Guangdong Development Bank in late 2006, China Life also purchased stakes in CITIC Securities and Minsheng Banking Corp.
Meanwhile, a number of banks have submitted applications to acquire stakes in insurance firms after regulators allowed such types of investment.
"This is a choice of the market, driven by customers' needs to get diversified financial services in an easy way and financial institutions' need to cut costs and improve operational efficiency," said Zhao Xijun, professor of finance at Renmin University of China.
What the regulator should do is to monitor these changes and improve the risk management scheme accordingly, Zhao said.
"Whether the regulatory framework will change or not in the future, our strategy is intended to better meet our customers' demands," Cheung said.
Under the existing regulatory framework, Ping An is striving to achieve better synergy by allowing the group company to take a stake, usually a controlling stake, of each type of financial unit.
The group said it had agreed to purchase up to 585 million new shares from Shenzhen Development Bank (SDB) for 10.7 billion yuan, or 18.26 yuan per share. It would also buy 520 million shares from the US-based TPG's Asian arm Newbridge Capital for 11.45 billion yuan by the end of 2010.
The deal, if approved by the regulators, would enable Ping An to acquire a nearly 30-percent stake in Shenzhen Development Bank, making it the largest shareholder.
SDB shares, gained nearly 10 percent to close at 22 yuan yesterday. Ping An's A shares climbed 2.28 percent to 46.13 yuan.
(China Daily June 16, 2009)