PICC Debut Shines Through Hong Kong IPO Gloom

Hong Kong Stock Exchange
Mike Clarke | AFP | Getty Images

Shares in Chinese state-owned insurer PICC Group surged in its Hong Kong trading debut on Friday, a lone bright spot in an otherwise dismal year for initial public offerings in the city and most other big regional markets.

The stock jumped as much as 7.8 percent as retail investors who missed out on shares in its $3.1 billion IPO, the largest in Hong Kong in two years, scrambled on board.

Despite the late boost to deal volumes from the PICC debut, new listings in Hong Kong are down more than 60 percent in 2012, making it the worst year since the onset of the global financial crisis in 2008.

People's Insurance Company (Group) of China, as the company is formally called, priced the biggest initial public offering in Hong Kong in two years at HK$3.48 per share, after marketing the deal in a range of HK$3.42-HK$4.03.

On Friday PICC Group was traded as high as HK$3.75, up 7.8 percent. The benchmark Hang Seng index gained 0.5 percent.

"The prices we saw today reflect people's confidence and expectations in us," PICC Group's Chairman Wu Yan said during a ceremony at the Hong Kong stock exchange. "Everyone has the same confidence in us as we have in ourselves."

The gains were a rare success in a difficult capital markets environment in Hong Kong, where some companies looking to go public have delayed or sharply scaled back fund raising plans.

Demand from retail investors for the PICC Group IPO was 17.5 times larger than the number of shares offered, the insurance company said in a securities filing on Thursday, leaving plenty of individual investors looking to scoop up shares on Friday.

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Institutional demand, excluding orders from cornerstone investors, was equivalent to three times the amount of stock on offer, Thomson Reuters publication IFR reported.

The IPO was the biggest in Hong Kong since the $20.5 billion listing of AIA Group in October 2010. The deal was also the largest in Asia excluding Japan since plantation company Felda Global Ventures Holdings $3.3 billion offering in June 2012.

Hong Kong led the world in IPO issuance in 2009 and 2010, but new stock offerings have dwindled and volumes are down by about 63 percent so far this year, including the PICC Group IPO, according to Thomson Reuters data.

Most deals in 2012 have been so-called block offerings, which target a select number of institutional investors and seek to bypass volatile demand from retail investors.

Across the region, only the Southeast Asian markets of Malaysia, Philippines and Thailand have seen a surge in IPO issuance, with volumes down more than 60 percent in China and South Korea and 40 percent in Singapore.

Growing Business

Founded in 1949, PICC is China's first nationwide insurer, with 2.42 million institutional clients and about 130 million individual customers, exceeding the entire population of Japan.

China has the world's sixth largest insurance market, where life and non-life premiums have recorded 22.1 percent and 24.8 percent growth respectively between 2006 and 2011, according to figures from the country's insurance regulator.

Swiss Re forecasts life insurance premiums to grow 8 percent and non-life insurance premiums to expand 13 percent in 2013, compared with a low single digit forecast for developed markets.

The country's life insurance market alone had $134.5 billion in total written premiums in 2011, PICC said in its preliminary IPO prospectus, citing figures from the Sigma Report compiled by Swiss Re.

Life insurance penetration in China reached 1.8 percent at the end of 2011, compared with 8.8 percent in Japan and 3.6 percent in the United States, it added.

"The life part of the business is growing fast and will become bigger part of the group going forward," Sally Yim, a senior credit officer at Moody's Investors Service in Hong Kong. "And the company will require more capital to meet the rapid growth in life insurance."

PICC Group hired a record number of underwriters and secured $1.82 billion in commitments from cornerstone investors, easing concerns it wouldn't find enough demand for the deal amid volatile global markets.

Cornerstone investors included U.S. insurer American International Group (AIG), utility State Grid, China's leading gold miner Zijin Mining Group and China Life Insurance.

Cornerstones back many Asian listings, committing to buy large, guaranteed stakes and agreeing to a lock-up period during which they will not sell their shares.

China International Capital Corp (CICC), Credit Suisse Group, Goldman Sachs Group and HSBC acted as sponsors of the IPO.

The record list of 17 banks helping to underwrite the deal also included Bank of America Merrill Lynch, Morgan Stanley and UBS, as well Chinese firms such as ABC International and BOC International.