Ping An Insurance (2318 HK / 601318 CH) –
Plan to invest in Founder Group after its restructuring
• After the reorganization process is done, the plan is to buy 51-70 percent of New Founder Group.
• A transaction of CNY37-51 billion is expected to be domestically funded by Ping An Life, whose solvency ratio will stay considerably above regulatory requirements after the deal is completed.
• The healthcare asset, in our opinion, is the main draw, albeit we have mixed feelings about the other assets that will be included in the reorganized firm. In the short term, awaiting regulatory clearances and additional information, some overhang appears inevitable, adding to existing concerns about a slower rate of sector recovery.
After Founder Group (an insolvent non-listed state controlled conglomerate founded by Peking University) completes its ongoing restructuring process, which was triggered by a court ruling in July 2020 after some of its subsidiaries experienced financial and operational difficulties, Ping An Insurance has proposed plans to acquire 51-70 percent of New Founder Group. Huafa Group (unrated, represents Zhuhai Municipality SOEs) and Shenchao Technology will buy the remaining shares in New Founder Group (unrated,designated entity of SDG Group). The acquisition is expected to cost CNY37-51 billion, with the money coming from within the company.
Ping An Existence. Ping An Life’s solvency ratio will stay considerably over the legal requirement after the acquisition, according to the business.
Given ongoing restructuring negotiations with Founder’s creditors and pending regulatory (CBIRC and People’s Court) clearance of the proposed agreement, no financial facts about the Founder group are available at this time.
The following is a link to the company announcement:
Medical/healthcare (via Peking University International Hospital and PKU Healthcare-000788.SZ, pharma company and healthcare, estimated 10k hospital beds); and securities brokerage – Founder Securities/ 6019010SH, information technology (Founder Technology 600601.SH, ranked 8th amongst information technology companies) are among the key business segments that Ping An Group plans to acquire under New Founder Group. Our thoughts are as follows: Although the proposed investment amount represents about 5-7 percent of Ping An Group’s 1Q21 net assets, there is likely to be some near-term overhang pending regulatory approvals and additional information. On a higher level, there is expected to be limited financial impact on Ping An Group post transaction (proposed investment amount represents about 5-7 percent of Ping An Group’s 1Q21 net assets). The healthcare asset, in our opinion, is the most appealing aspect of the new restructured organization, albeit we have mixed feelings about the other assets that come with it.
While there is expected synergy with Ping An’s ongoing efforts to expand its healthcare ecosystem (the group plans to combine Ping An Good Doctor’s online platform and Founder Group’s hospital network and resources) and the transaction will be internally funded, some questions remain at this time, including whether its life business is the right entity for this investment and integration concerns (various Founder Group hospitals).
Although it is impossible to estimate the potential impact at this time due to the limited information available on the New Founder Group, there should be some minor negative implications on solvency capital (Ping An Group and Life’s solvency ratios were solid as of end FY20, at 232 percent and 237 percent respectively, compared to a minimum core solvency ratio of 50 percent).
As of the end of 1Q21, Ping An Life has a substantial surplus capital balance of around CNY627 billion. BUY.
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