[Excellent news!]--Shareholders blocking Carlyle on China deal
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By Cathy Chan Bloomberg News
Thursday, March 17, 2005
HONG KONG Carlyle Group, a U.S. buyout firm, is being blocked by shareholders of China Pacific Insurance from making its biggest investment in China, people involved in the transaction said Wednesday.
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Carlyle and Prudential Financial, the No. 3 U.S. life insurer, agreed in December to pay as much as $400 million for 24.9 percent of the Shanghai-based company's life insurance unit.
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Shanghai State-Owned Assets Operation, which owns more than 10 percent of China Pacific, is leading opposition to the transaction, saying it would delay an initial public offering of the business, according to the people, who declined to be identified.
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Carlyle and Prudential Financial are bidding to enter a $52 billion insurance market that may grow 25 percent in each of the next five years, according to forecasts from Boston Consulting Group.
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China Pacific, the nation's third-largest insurer, needs funds because it is unable to meet capital reserve requirements, the people said.
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"The state-owned shareholders, who usually don't understand the business they invest in, always want to make a quick profit from a stock sale," said Liu Feng, an executive director at the Shenzhen-based Century Securities.
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China Pacific collected 34.5 billion yuan, or $4.2 billion, in life premiums last year, 10.8 percent of the nation's total, according to the China Insurance Regulatory Commission. The company has 12 percent of the $13.2 billion Chinese property and auto insurance market.
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China's overall insurance market generated 431.8 billion yuan of premiums last year, an increase of 11 percent from 2003.
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"Carlyle is confident the deal is going to go through because it is in the company's best interest," said Chris Ullman, a spokesman in Washington for Carlyle, which has about $18.9 billion under management.
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Jin Wenhong, Shanghai-based head of the life insurance business at China Pacific, and Zhou Jin, head of the strategic investment department at Shanghai State-Owned Assets, declined to comment.
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A Prudential spokesman, Michael Hanretta, declined to comment.
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The investment by Carlyle and Prudential would surpass Newbridge Capital's $145 million purchase of an 18 percent stake in Shenzhen Development Bank as the biggest private equity investment in China.
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"Most Chinese insurers have insufficient capital to cover potential liabilities so everyone is scrambling for funds," said Liu at Century Securities. "Carlyle's investment benefits shareholders so it should get through eventually."
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Another shareholder that has shown opposition to the transaction is Shanghai Baosteel Group, the nation's biggest steel maker, which owns about a quarter of China Pacific, the people said. Huang Kongwei, Baosteel's investment director, declined to comment.
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The shareholders oppose Carlyle's demand that the company be allowed to sell shares solely in its life insurance unit after December 2006, the people said. Carlyle last year dropped its insistence that China Pacific must sell shares in its property and life business by March this year.
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The insurance commission, the industry regulator in China, held meetings with the Shanghai municipal government last week to ask the shareholders to reconsider, the people said. Shi Hong, a director of the news department at the commission, did not answer phone calls to her office in Beijing.
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The mayor of Shanghai, Han Zheng, also sent a letter to China Pacific, urging that the insurer make its best effort to complete the Carlyle investment, the people said. Calls to Han's office went unanswered Wednesday.
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Shanghai State-Owned Assets and Baosteel prefer a combined public offering of the company's property and life insurance businesses because that would bolster the value of the share sale and allow them to get a return on their investments at the earliest opportunity, the people said.
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Carlyle opened an office in Shanghai last year and will establish one in Beijing in the next three months.
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