China PICC sets $3.6 billion HK IPO terms, AIG drops out

HONG KONG Wed Nov 21, 2012 7:50am GMT

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HONG KONG (Reuters) - Chinese state-owned insurer PICC Group has wound back expectations for its proposed Hong Kong listing, securing pledges from a group of mostly domestic investors for its up to $3.6 billion IPO, the biggest in the city in two years.

The long-awaited offering is now set to be priced on November 30, but the underwriters have revised down the company valuation and IPO size, underscoring the tough environment for capital raising, sources with direct knowledge of the deal said.

People's Insurance Company (Group) of China (PICC), one of China's largest insurers, is tapping the Hong Kong equity market at a time when IPO volumes in the financial center have tumbled more than 80 percent. PICC will be the biggest Hong Kong IPO since another insurer, AIA Group Ltd (1299.HK), raised $20.5 billion in 2010.

The company secured $1.35 billion in commitments from 16 cornerstone investors as varied as Chinese utility State Grid Corp STGRD.UL, the country's leading gold miner Zijin Mining Group (601899.SS), defense contractor Spacechina CNAST.UL and China Life Insurance Co Ltd (2628.HK) (601628.SS), the sources said.

The list is still subject to last minute additions, sources said.

U.S. insurer American International Group Inc (AIG.N), which had been in talks to invest in the IPO, dropped out because of PICC's valuation, one of the sources said, despite a lower valuation than in some early estimates. AIG was not available for immediate comment.

"The seller (PICC) is pushing the envelope on valuations," the source added.

French reinsurer Scor (SCOR.PA) and Tokio Marine Holdings (8766.T) are among the global companies who have committed to buy PICC shares. The two companies could not be reached immediately.

$18 BLN COMPANY

The price range for the IPO was set at HK$3.43-HK$4.03 per share, valuing PICC at 96 billion yuan to 113.2 billion yuan ($15.4 billion to $18.2 billion) before the IPO, Thomson Reuters publication IFR reported, citing four sources familiar with the matter.

That is lower than the 130 billion yuan valuation initially sought, IFR added.

PICC is offering 6.9 billion primary shares, or 16.7 percent of its enlarged capital, aiming to raise 19.18 billion yuan to 22.6 billion yuan. Proceeds from the offer would be used to bolster its capital base.

A record 17 banks have been roped in to sell the offer, which is being marketed to global institutions.

IFR previously reported the IPO had been expected to value PICC at $20.8 billion to $30.5 billion, or at 2-2.5 times the 2013 price to book value and at a 2013 price to earnings ratio of 10.5-15, according to pre-deal research reports.

Asian insurers on average trade at around 15.9 times forward price to earnings, Thomson Reuters data shows.

PICC's listing comes at a time when the volume of new offerings in Hong Kong has plunged, with IPO activity likely to shrink to its lowest since 2008 as investors shun new deals due to volatility caused by Europe's debt troubles.

Overall issuance in the city is little changed so far in 2012 from 2011 at about $38 billion, but the year has been a dismal one for IPOs, down more than 80 percent, according to Thomson Reuters data.

Most of the activity has been from so-called block deals that target institutional investors, including a $6 billion offering of AIA Group (1299.HK) stock in March and a $2.5 billion sale of Industrial and Commercial Bank of China (1398.HK) shares in April.

PICC and companies including Future Land Development Holdings Ltd will test investors' appetite for IPOs in coming weeks with nearly $5.2 billion of deals.

Founded in 1949, PICC is China's first nationwide insurer and has 2.42 million institutional insurance clients and about 130 million individual insurance customers, more than the entire population of Japan.

The company is controlled by China's Ministry of Finance, which has an 88.7 percent stake, while the National Social Security Fund holds the remainder.

China International Capital Corp (CICC), Credit Suisse Group AG (CSGN.VX), Goldman Sachs Group Inc (GS.N) and HSBC Holdings Plc (HSBA.L) won mandates as sponsors of the deal.

The list of banks also helping to underwrite the IPO includes Bank of America Merrill Lynch (BAC.N), Morgan Stanley (MS.N) and UBS AG (UBSN.VX), as well Chinese firms such as ABC International and BOC International. ($1 = 6.2326 Chinese yuan)

(Additional reporting by Jing Song of IFR and Clare Baldwin; Writing by Denny Thomas; Editing by Tim Dobbyn and Richard Pullin)

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