Experts predict that the $9.4 billion sale of the Ping An stake will be rejected.
According to media reports, it is expected that the Chinese insurance industry regulator will refuse the sale of HSBC’s stake in Ping An Insurance – a deal worth $9.4 billion – to a conglomerate CP group in Thailand.
Should the deal fail, it will be a difficult hit to HSBC and will cause embarrassment among other parties involved.
This insurance industry deal was aligned to be the second largest that occurred last year. However, if it falls through, it will be embarrassing to everyone who took part, and will be a painful kick to HSBC.
Despite this, the regulator of the Chinese insurance industry will likely veto the sale.
It is believed by both the Wall Street Journal and the South China Morning Post that the China Insurance Regulatory Commission (CIRC), which has power over the entire insurance industry within the country, will not allow the deal to close. This decision will be justified due to a lack of funding.
Similarly, Reuters had previously cautioned that the deal was in a dangerous condition after the China Development Bank – a state-backed financial institution – voiced its concerns over the funding behind the purchase. That report indicated that the reluctance of the China Development Bank (CDB) stemmed from data that had been released at the tail end of 2012, which showed that the payment for CP Group had come from outside sources.
Subsidiaries of CP made a $1.9 billion payment on December 7, which was the first installment in the purchase. Following this payment, the shares had been transferred over to that company, said HSBC. The remainder of the payment would come due with a February 1, 2013 deadline, following the receipt of regulatory approval.
At first, CDB had given its backing to the remainder of the purchase, despite the fact that the actual size of the loan was not revealed by HSBC. Another potentially critical setback for the insurance industry deal would be the withdrawal of CDB from the process. That said, it would not necessarily eliminate all chances for continuing the sale, provided that another source of funding could be found before the final payment deadline.