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Kill two Birds with Only One Stone

2007-8-13

 

Economic Observation

CMBC announced on June 27 that by 17:00 of June 18, as the main underwriter and sponsor for CMBC’s private placement of 2 billion shares, Haitong Securities received 18.16 billion yuan of subscription fund in the dedicated account opened with the first sub-branch, Shanghai Branch, Bank of Communications paid by the investors in the private placement of common shares of CMBC. So far, CMBC’s private placement that has lasted as long as 11 months has settled at last.

This is not only the biggest single private placement in the capital market. The most noticeable thing is that China Life and Ping An Insurance, both of them are listed insurance companies, are among the top ten shareholders of CMBC. Executives from these two companies have explained the reasons for their investments in CMBC.

CMBC has finally solved the problem of insufficient capital fund, which has been a bottleneck for the company’s development. Together with the funds raised through its H-shares, CMBC has established the capital basis for developing into a financial holding company through investing in or merging finance institutions.
 
Kill two birds with only one stone.

After this issuance, China Life and Ping An Insurance have both entered list of CMBC’s top ten shareholders, for the 714 million shares they purchased respectively. Among this list, together with the circulating A-shares it purchased before, China Life has occupied 893.6 million shares, accounting for 6.17% of the total shares of CMBC, becoming the single biggest shareholder of the company. However, considering the relationship between New Hope and Southern Hope, China Life becomes the second biggest shareholder. Ping An Insurance is the fourth biggest shareholder holding 4.93% of the total shares.

High-level management of CMBC told the reporter that the new shareholders, China Life and Ping An Insurance, will enhance CMBC’s business operation, strategic cooperation, and corporate management. These two institutional investors that are influential in capital market will further improve the image of CMBC in the market.

According to relevant personnel from China Life’s Investment Management Department, who is in charge of the company’s investment in CMBC, China Life has invested in CMBC as a financial investor. However, as the No. 1 shareholder, China Life will recommend on corporate governance to ensure stock appreciation. So the company will be more active than ordinary investors.

Currently the bonus for equity investment is little, while benefits mainly come from capital gains. So China Life hopes to get its gains through constant increments of its CMBC equity. Liu Lefei, Chief Investment Officer of China Life indicated that the company’s investment is a long-term action and the company won’t sell them out within a short period of time. According to him, China Life expects no less than 20% annual returns of investment from CMBC.

Recently, China Life and CMBC signed a strategic cooperation agreement. Both parties will further enhance their business cooperation in terms of bank-insurance cooperation, premium deposit, cross-selling etc to realize win-win.

 

 

 

 

 

 

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