What are the consequences of the Ping An-Country Garden rumours?

Insurer noted it may not have intentions to take over

What are the consequences of the Ping An-Country Garden rumours?

Insurance News

By Jonalyn Cueto

Concerns have been raised over the possibility Ping An will be asked to “clean up a mess,” following a Reuters report saying Chinese authorities are asking the insurer to take a controlling stake in developer Country Garden Holdings Co.

According to a Bloomberg report, the insurer has repeatedly denied the takeover speculation. Analysts, nonetheless, have commented on the possibilities, noting such a deal would be dangerous. Questions would more likely be raised about the strength of Ping An’s balance sheet, potentially risking a collapse of confidence in the insurer, they said.

Ping An has over 11 trillion yuan ($1.5 trillion) in total assets and about 227 million retail customers across China. It reported a 1.2% decline in its first half-year net profit and its shares fell by almost 7% over the two sessions after speculation broke out - to their lowest level in a year.

The report said past takeovers of large and troubled companies in China were often led by state-owned firms with strong backing from the national government in case losses snowballed. Ping An made it to the news in 2021 when its investment in Fortune Land Development Co. resulted in the loss of about 24 billion yuan.

“Investors are worried that Ping An is being asked once more to clean up a mess, much like it did with China Fortune Land, which ended up being a huge drain on its finances,” said Li Xuetong, fund manager at Shenzhen Enjoy Investment Management Co. “Any investment may take down Ping An, given the depressed valuation of Chinese property assets.”

Fallen share value

Ping An has been reducing its real estate holdings, and among those were its stake in Country Garden last quarter. According to Bloomberg files, the insurer is trading at 0.7 times book value, compared with 0.1 times for Country Garden. Ping An’s shares have dropped by over 26% this year.

Nomura analysts are saying Ping An may have no intention to take over the property company “considering that it has already cut its position in Country Garden.”

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