Taxmen hover over Ping An’s $22b
fund plan By Sally Wang
Plans by Ping An Insurance, the country's
second-largest insurer, to raise 160 billion yuan
(US$22.4 billion) have been undermined two days
before shareholders vote on the scheme with a tax
authority announcement that it was checking the
accounts of the firm and its subsidiries, starting
on Monday.
Ping An, listed in Shanghai and
Hong Kong, plans to raise the funds with the sale
of new shares and convertible bonds. Analysts said
the tax check was a further gesture by a
government trying to stabilize the stock market to
stop "irresponsible" refinancing activities by
listed companies.
The country's securities
watchdog has already indirectly criticized the
fund-raising plan by Ping An, listed in Hong Kong
in 2004 and raised about 40 billion yuan early
last year through an A-share
initial public offering on the
Shanghai Stock Exchange.
Ping An denied
the taxation check had anything to do with its
refinancing plan, which market analysts said may
have to be shelved or postponed pending the result
of the tax check.
The State Administration
of Taxation will send inspectors to the
headquarters of Ping An and its subsidiaries
across the country to check their accounts, the
21st Century Business Herald, a Guangzhou-based
newspaper, reported last week. The check would
last for four months, beginning from March 3, it
said.
Analysts said the authorities were
showing they are “not happy” with Ping An’s
“irresponsible” or even “vicious” plan to raise
money just for the sake of having more money at
its disposal, taking advantage of the Chinese
government’s policy of expanding the
yuan-denominated A-share market to help absorb
funds from society as part of its efforts to curb
excess liquidity. Beijing’s market policy includes
encouraging listed companies to issue more shares
and corporate bonds this year.
In light of
Beijing's policy, Ping An, which was listed in
Hong Kong in 2004 and raised a further 40 billion
yuan early last year with it’s A-share initial
public offering (IPO) on the Shanghai Stock
Exchange, announced on January 21 that it would
raise about 160 billion yuan through issuance of
1.2 billion new A shares and 40 billion yuan worth
of convertible bonds.
Several dozen listed
companies, including Shanghai Pudong Development
Bank, have since said they also intend to issue
new shares or bonds, raising fears among investors
that the frequent refinancing activities would
drain the pool of available capital.
Their
concerns were heightened as many of the companies,
including Ping An, could not offer what were seen
as justifiable reasons for their refinancing, with
investors suspected they simply want to grab more
money by using the stock market effectively as
their auto teller machine.
Ping An has
said it would use any funds raised to expand its
core businesses through mergers and acquisitions,
while declining to specify any possible purchase
target.
The refinancing plans have
increased bearish sentiments on the A-share
market. Ping An’s A shares in Shanghai and H
shares in Hong Kong have sunk by more than 30%
since it unveiled its refinancing plan. The shares
traded in Shanghai yesterday at just above 67
yuan, down about 4% on the day, and a decline of
55% from their 149,28 yuan high last October.
The Shanghai Composite Index is down 38%
to about 4,335.45 from its record high of 6,092.06
on October 16.
Weighing on the insurer's
share price, 3.12 billion of Ping An shares
previously restricted for circulation became free
for trading as of March 3. The number of newly
available shares is 3.8 times Ping An's A shares
available in the market at the end of the previous
week.
A China Securities Regulatory
Commission (CSRC) spokesman said on February 25
that it is an important function of capital
markets for listed companies to raise funds, but
listed companies should not raise funds for
"vicious" purposes. Without naming Ping An, the
spokesman said any refinancing activity must take
into consideration investors' "bearability".
(China shares drive may drown a
golden goose, Asia
Times Online, February 28, 2008)
A Ping An
spokesman responded by saying the company's
fund-raising plan is in accordance with
regulations and is still going through the
company's internal procedures. Ping An will
strictly follow legal requirements and take into
consideration the timing, scale and the
bearability of the market in its fund-raising
decision, he said. The spokesman stopped short of
saying whether the company would scrap or postpone
or scale down its fund-raising plan.
That
was before the announcement of the tax audit.
Liang Jiaju, Ping An’s executive vice general
manager, conceding last Friday that a tax check
was on the way, said it was not targeted at and
will not affect to the company's refinancing plan.
Liang is so far the highest official with
Ping An Insurance that has publicly responded on
the refinancing plan. He interpreted the tax check
at such a sensitive time as routine and the timing
as coincidence. "The state taxation authority
checked some other insurance companies last year.
The plan to check on Ping An was set last year,
and we have prepared for that," said Liang.
Even so, the tax inspection casts a shadow
over Ping An’s refinancing plan. If the tax
watchdog discovers any discrepancy in Ping An’s
accounts, the company would at least have to
revise the refinancing documents and the
fund-raising plan might have to be postponed until
after July, even if it is accepted by the
necessary two-thirds majority of shareholders,
analysts said.
An overwhelming majority of
small shareholders definitely would vote against
the refinancing plan, insiders said. With the
condemnation by the CSRC’s and the taxman’s
announced high-profile action, institutional
investors might also go against it, knowing the
insurer’s plan does not have the government’s
blessing, they said.
Liang played down the
possibility that the tax probe announcements would
affect the voting result at the shareholders'
general meeting on March 5, and said the probe
would not uncover big problems.
Some
investment bankers are now advising Ping An to
sell convertible bonds first, and hold back the
new share issuance until later this year, the
Shanghai Securities News reported. There is no
detailed timetable for the refinancing plan, so
that the proposal is approved on March 5, Ping An
could still seek regulatory approval then wait for
the best market conditions to sell its new share
sales.
"Only when the A-share market
remains bullish, can it really help absorb funds
from society,'' a stock analyst based in Shenzhen
said. "Investors tend to put in their money into a
bullish market and stay away when it becomes
bearish. The A-share market is already full of
bearish sentiments, due to the US sub-prime
meltdown and Beijing’s tightened macro-economic
controls. Huge and unjustified refinancing plans
like Ping An’s make it even worse.
"This
is something the government cannot tolerate
because it would jeopardize its policy of market
expansion. This explains why the CSRC and the
taxation authority took the moves to target Ping
An."
That targeting is yet another example
that the A-share market is not fully free but is
still strongly guided by the "visible hand" of
government, the analyst, who declined to be named.
said. At present, the government needs to
intervene from time to time to ensure its market
expansion policy will not be jeopardized, he said.
Even while trying to counter the negative
influence of Ping An’s and others' refinancing
plans, financial regulators are trying to prop up
the A-share market in an apparent move to pave way
for market expansion.
CSRC officials last
week made public comments saying the outlook of
the A-share market remains good in 2008, as the
economy will continue to grow rapidly. They also
said the regulator would give the go-ahead for the
launch of more securities investment funds.
The China Insurance Regulatory Commission
(CIRC) also said it is likely to ease restrictions
to allow insurers to invest more funds in the
stock market. An insurance firm at present is
allowed to spend up to 5% of its total assets to
directly buy stocks and another 15% to invest
indirectly in the stock market through buying
securities funds. Large amounts of funds from such
institutional investors would certainly help to
stabilize the market.
Sally Wang is a
freelance writer based in mainland China.
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