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HSBC: China acquisition
HSBC announced that it had increased its stake in Ping An, a Chinese insurance company. The bank will acquire an additional 9.91% of the issued share capital of Ping An for HK$8,104m (US$1,039m). The vendors are Goldman Sachs and funds managed by the private equity business of Morgan Stanley. The acquisition will be made at a price of HK$13.20 per share, 9% above Monday’s closing price.
The acquisition will be channelled through HSBC’s wholly owned subsidiary, HSBC Insurance Holdings Limited.
HSBC already has a 10% holding in Ping An which it bought in 2002 for $600 million. The bank has also bought stakes in a number of Chinese financial institutions including the Bank of Shanghai (acquiring 8% in 2001), the Bank of Communications, China’s fifth-biggest lender (acquiring 20% in 2004).
Given HSBC’s origins (founded in Shanghai in 1865) and strong presence in Asia (particularly Hong Kong) the bank’s strategy of increasing its presence in China is logical. There is always a risk in investing in China due to the lack of transparency but HSBC has many years of experience to draw on and is probably better placed than any other financial institution (apart from its great rival in Asia, Standard Chartered) to be able to assess the risk associated with investing in China.
The bank is well run and stable, hence commands a high PE of ( 13.2x on 2005 earnings) at the current price of 858p. The yield is 4.4%
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