China Development Bank Cancels Loans for Ping An Deal

The Hong Kong branch of China Development Bank (CDB) has been ordered by its Beijing headquarters to cancel loans that would have been used to finance an acquisition involving the nation’s second-largest insurer, a bank source said.

The source said the decision was reached following a Caixin investigative report over the deal’s problematic financing.

The bank had intended to lend HK$44 billion to Thai business conglomerate Charoen Pokphand Group, which had planned to acquire HSBC’s entire 15.57 percent stake in Ping An Insurance Co. for US$9.4 billion, or HK$72.7 billion.

The CP-HSBC deal was to be completed in two phases. The first, which closed December 7, apparently violated China Insurance Regulatory Commission (CIRC) rules. The second phase involving CDB-Hong Kong support was awaiting CIRC approval, expected by February 1, when CDB in Beijing nixed the transaction.

CIRC rules, in effect since 2010, bar the use of bank loans and other non-proprietary capital to acquire an insurance company stake. The rules also say neither an individual nor institution can serve as a trustee holder of an equity stake in a Chinese insurance company.

CP said the second payment tranche, which would have been HK$57.3 billion, would have been partly financed with loans from CDB’s Hong Kong branch.

But top officials at CDB, the Chinese government’s leading policy-oriented lender, issued a risk warning to its Hong Kong office regarding the loan, the source said, effectively calling off the deal.

He added the decision was based on confirmation of a Caixin report that two-thirds of the first payment did not come from CP but was actually supplied by a group of mainland investors led by businessman Xiao Jianhua. The rest of the money came from former Thai prime minister Thaksin Shinawatra.

It was also found that Xiao had leveraged his connection to tap funds from three municipal commercial banks in northern China.

Xiao denied his involvement in the transaction in a statement on December 23. CP said the same day that it had raised funds for the deal through legal means, including loans from CDB.

The Hong Kong-based South China Morning Post reported earlier that CDB was weighing its decision to back the Ping An deal.

CP had total net assets of US$9 billion as of 2011. It focuses on agribusiness, retail, and telecoms, and was founded by Thailand’s wealthiest person, Dhanin Chearavanont. In 2007, CDB offered CP a credit line of 100 billion yuan and US$10 billion for its business in rural China and overseas mergers and acquisitions. But the credit line wasn’t tapped by CP and expired in April 2012.

CDB’s Hong Kong branch was set up in 2009 and has outstanding loans totaling about HK$250 billion.