Sunday, December 18, 2005

Prudential Investing in No. 3 China Insurer

Reuters, George Chen, Sun Dec 18, 2005 11:56 PM ET

Shanghai, Dec 19 (Reuters) - U.S. buyout firm Carlyle Group, one of the biggest foreign investors in China, said on Monday it would lead a $410 million investment for a quarter of the third-largest life insurer in the fast-growing mainland market.

In a long-expected deal, Carlyle said it would buy a 25 percent in China Pacific Life Insurance with Pramerica Financial, the service brand of the U.S. Prudential in China and other major markets outside the United States.

Foreign insurers such as American International Group and Manulife Financial Corp. have piled into the market, where less than 4 percent of China's 1.3 billion people have insurance.

The companies did not provide a breakdown of which firm would contribute how much of the investment, but China Pacific's parent, China Pacific Group, has agreed to inject another $410 million into the insurance unit.

Carlyle, which agreed to buy 85 percent of China's biggest machinery company for $375 million in October, has been at the forefront of China's private equity market, which is being stalked by rivals like KKR and Warburg Pincus.

In April 2004, the company said it was aiming to invest as much as $1 billion in China over the next year and a half.

The China Pacific deal, which is expected to close within a month, took three years of negotiations and exemplifies the difficulty of completing big transactions through China's rigorous and often opaque approval process.

"We fell in love with each other at first sight but we spent three years to negotiate the price of such a marriage," said China Pacific's chairman Wang Guoliang.

Carlyle said it would hold its stake in China Pacific for at least three years under a lock-up agreement. The insurer plans to list its shares in Hong Kong or Shanghai within the next two years, Wang said.

Carlyle will eventually sell its stake to Prudential and sources previously told Reuters the two foreign investors plan to increase their stakes to 49 percent when rules allow.

Chinese life insurance premiums rose 12.8 percent between January to September from a year earlier to 247 billion yuan ($30.6 billion), state media said, as Beijing dismantles its cradle-to-grave welfare system.

China Pacific has 11 percent share of a rapidly growing life insurance market dominated by top two local players China Life Insurance Co. (LFC.N) and Ping An Life Insurance (Group) Co.

Carlyle will upgrade China Pacific's corporate governance, risk management, product sales and technology to help boost the insurer's performance.

"Carlyle believes China's life insurance industry is a relatively long-term investment and we believe the profitability of China Pacific will increase after Carlyle's joining," said X.D. Yang, co-head of Asia buyouts for Carlyle.

Yang said Carlyle would not invest in any other Chinese insurance companies after making the deal with China Pacific.