Banks reap 14x return from Chinese deal

Goldman Sachs and Morgan Stanley have posted a 14-fold return on their investment in Ping An, the Chinese life assurance firm, following the sale of their stakes to HSBC.

The ability of Chinese deals to deliver stellar returns to investors has been illustrated by the extraordinary $1.1 billion (€858 million) sale of a ten percent stake in Ping An, China’s second-largest life assurance group.

According to a report in today’s Financial Times, global investment banks Goldman Sachs and Morgan Stanley acquired a combined 12.7 percent interest in Ping An for about $70 million in 1994. The deal was one of the first private equity investments in China.

The two banks’ interest was reduced to around ten percent last year when they sold shares in the wake of Ping An’s $1.8 billion initial public offering on the Hong Kong Stock Exchange.

HSBC has paid $1.1 billion to its banking rivals for a 9.9 percent interest. It had already forked out $600 million for a ten percent stake in Ping An in 2002, bringing its total holding in the business to 19.9 percent: the maximum that a foreign investor in a Chinese insurer is allowed to own.

Ping An, which has 20 million policy holders and a 250,000-strong sales force, is set to benefit from a predicted doubling in value of the Chinese insurance market from $50 billion to $100 billion over the next three years. It has a market share of around 17 percent.

It is expected that HSBC will form a joint venture to develop and sell insurance products with Ping An. The two companies jointly acquired Ping An Bank in 2003.