China’s largest property insurer PICC Property & Casualty Co braved the volatile market and raised RMB 5 billion ($790 million) through simultaneous shares issued at the Hong Kong and Shanghai bourses in December last year.
The issuer engaged law firms Linklaters and King & Wood for Hong Kong and PRC advisory, while the underwriters retained Freshfields Bruckhaus Deringer and Jun He Law Offices for Hong Kong and U.S., and PRC counsels respectively.
The deal marked many firsts, including the first simultaneously A- and H-share rights issues by a PRC company listed at the Hong Kong bourse.
PICC has been listed at the Hong Kong Stock Exchange since 2003. The proceeds raised will help the insurer shore up its capital base and beef up its solvency ratio at above 150 percent—a regulatory requirement for China’s giant insurers.
The King & Wood team was headed by lawyers Yang Xiaolei and Su Zheng. The deal was underwritten by a consortium including China International Capital Corporation, Hong Kong Securities, HSBC, and Goldman Sachs. The Freshfield’s team was led by partners Richard Wang and Calvin Lai who advised on Hong Kong and U.S. laws respectively.
The overwhelming response to PICC’s fundraising shows that rights issues remain a viable alternative, according to Thomson Reuters publication IFR. . The H-share offering received subscriptions of about 3.58 billion shares for a coverage ratio of 10 times. The parent PICC Group subscribed to all the 768.6 million domestic shares at RMB 4.49 ($0.71), while AIG, which holds a 31.92 percent stake in the H-share company, also took up its entitlement in full.
“It’s not surprising that rights issues can be easily done in such a volatile market,” said a banker familiar with the situation. “The price represents a deep discount of 47 percent, which is very attractive. Another reason is that existing shareholders would like to buy the shares to avoid being diluted.”
“Rights make sense in a bad market, and for state-owned issuers, their rich parents will purchase all the domestic shares. So these deals are always safe,” added another banker.
PICC’s rights issue took place one month after China’s third-biggest insurer, New China Life Insurance Co, raised $2.3 billion through a public listing at both the Hong Kong and Shanghai bourses. Freshfields, Davis Polk & Wardwell, and Commerce & Finance Law Offices advised New China Life on its listings. ALB
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