China's largest insurance group by market capitalisation Ping An Insurance is considering buying UK-headquartered Prudential's Asia business, people familiar with the matter said, a deal that would reshape Asia's booming insurance industry and mark the biggest ever Chinese acquisition.
Ping An has sounded out the Chinese government about whether it would be supportive of a deal, reports Bloomberg quoting one of the people. The Shenzhen-based insurer has also discussed potential financing options with banks, another person said, asking not to be identified discussing sensitive information.
Deliberations are at an early stage, the people said, and it wasn’t immediately clear how a deal to gain control of Prudential’s Asian business would be structured. The UK company hasn’t been approached, one person said.
Ping An’s deliberations show it is now ready to turn its financial firepower, combined with expertise gained cobbling together dozens of deals in the past five years, into a giant land grab that would add more than $30bn in annual revenue. Ping An had about $81bn of cash and equivalents at 31 March, data compiled by Bloomberg show.
Prudential’s business in Asia, including its Eastspring asset management unit, could be valued at GBP40bn ($51.5bn), according to a sum-of-the-parts estimate from Panmure Gordon & Co analyst Barrie Cornes. Potential buyers may well have to pay a premium to that to gain control, he said.
Any acquisition would present many hurdles, not least an expensive price tag, according to Bloomberg Intelligence insurance analyst Steven Lam. China’s budding life insurance, healthcare and FinTech growth are "already enough to keep Ping An busy over the coming years," he said. "Nevertheless, expansion overseas remains a possibility."
However, Prudential is bullish on Asia and wouldn’t consider a sale of its business in the region, CEO Mike Wells said in a Bloomberg Television interview. “This is a highly underpenetrated, fast growing market” for insurance that also offers asset management opportunities.
1H2018 operating profit from Prudential’s Asian business jumped by 14% to GBP1.02bn on a constant exchange rate basis, the insurer said. Asia contributed about 42% of Prudential’s total operating profit during the period, up from 35% for all of last year, data compiled by Bloomberg show.
Mr Wells is planning to spin off Prudential’s UK operations, to focus on faster growing markets such as Asia. Prudential will also hold on to businesses in Africa and the US, while splitting M&G Prudential—formed last year through the combination of its UK asset management business with European insurance assets—into a new company.