China's Ping An Insurance is in the final stage of talks to buy a major stake in the asset management arm of Belgian-Dutch financial group Fortis, two sources with direct knowledge of the situation said on Friday.
Fortis is eager to bolster its financial position after announcing earlier this month that its profit halved in the fourth quarter following a 1.5 billion euro ($2.3 billion) subprime-related writedown.
At the same time, Fortis hinted that it was about to make a deal that would increase its solvency, although it did not elaborate. Fortis shares have lost nearly half of their value in the past year as it paid 24 billion euros to buy part of Dutch rival ABN Amro and saw part of its subprime investments sour.
Ping An, China's second-largest life insurer, which plans to raise about $16 billion through one of the world's biggest corporate fund raisings, is moving quickly to expand abroad as growth is slowing in its domestic life insurance business.
Fortis has hired Wall Street bank Merrill Lynch to advise it on the sale of a stake in Fortis Investment, the asset management unit, while JPMorgan is representing Ping An on the proposed deal, said the sources, who declined to be identified because no deal had yet been signed.
The sources told Reuters Ping An and Fortis were unlikely to reach final agreement before the end of the month or in early April, adding that Ping An would not unveil a deal when it holds a news conference in Hong Kong next Thursday on its 2007 results.
The Financial Times reported that Ping An, based in Shenzhen near Hong Kong, might buy a 50 percent stake in Fortis's asset management business in a deal that could inject as much as 2.2 billion euros into Fortis.
Fortis is merging its asset management unit with that of ABN in two weeks to create a business with 240 billion euros under management that will have an equal split between retail and institutional clients. It was not clear whether any deal with Ping An would include ABN's asset management business.
A Fortis spokeswoman declined to comment. Merrill Lynch and JPMorgan representatives in Asia also declined to comment.
The sources declined to confirm the financial details, saying only that Ping An was keen to buy a major stake so that it could have the right to appoint senior executives to the management of Fortis Investment.
Not Just Europe
"Ping An is very much interested in having a strong partnership outside China for its asset management services as it has seen rapidly increasing demand from wealthy Chinese clients who want to diversify their investments," said one of the sources.
"A strong partnership means you are not just a financial investor but can also have real influence when you need your partner to help you with some specific deals," he said. "In this case, you have to buy a big stake in them."
Early this month, shareholders in Ping An approved a plan for a domestic equity issue that could raise about $16 billion, based on its current share price. The plan still needs the approval of China's securities regulator.
"The Fortis-Ping An deal only takes a small part of the $16 billion fund-raising plan and I am sure that you will see more and bigger overseas deals by Ping An this year," said the source.
Last year, Ping An paid $2.7 billion for a 4.2 percent stake in Fortis. It has said it intends to make domestic and foreign acquisitions in line with its core business.
Ping An has also hired Goldman Sachs to help it to look for a number of acquisition targets in both the European and U.S. markets, including a possible investment in British insurer Prudential, although there has been no specific progress on any deals yet, said the sources.
Goldman is not involved in the Fortis-Ping An deal, the sources added.
Fred Hu, a China-based managing director of Goldman Sachs, is leading a team of investment bankers to recommend some potential deals in Europe and the United
States to Ping An, said the sources, declining to elaborate.
"Ping An's top bosses and its investment bankers all agree that there are lots of things that are worth taking a look at after the U.S. credit crisis," said the second source.
"The crisis will reach an end sooner or later, while the crisis definitely means a good opportunity for Chinese firms like Ping An that have huge capital and just want to make sure what the best deal is," he added.
Representatives at Ping An and Goldman Sachs declined to comment.