Posted on Apr 11, 2011 by Sergio Ulloa
Goldman Sachs has successfully bought a 12.02 percent stake in Taikang Life Insurance Co Ltd, China's fifth-largest insurer by premiums. Announced in a joint statement on Friday, April 8th 2011, the acquisition gives the US Investment bank a long-sought-after foothold in the world's largest insurance market.
"The two companies will strengthen cooperation in corporate governance, risk management, investment management and product development," the joint statement read.
The stake purchase was approved by the China Insurance Regulatory Commission (CIRC). The financial details of the deal were not disclosed. Market estimations place the acquisition cost for Goldman Sachs at around USD$900 million for the shares.
Goldman's purchased the shares from French insurer AXA SA. Last month AXA announced that it has been given regulatory approval to sell its 15.6 percent stake in Taikang Life to a group of investors for USD$1.2 billion.
AXA originally inherited the stake through the acquisition of Swiss insurer Winterthur in 2006, and have subsequently been looking to sell their shares since 2009. Regulations in China prevent foreign investors from holding multiple assets in the Chinese life insurance sector, and AXA are also involved in a joint venture with the Industrial & Commercial Bank of China and China Minmetals Corp.
Goldman Sachs was announced as the preferred bidders last year, bidding high and beating out the Blackstone Group and Temasek Holdings, among other notable entrants in the Taikang auction. Japan's Softbank Corp and two state-owned Chinese enterprises, China Guardian Auctions Co. and New Deal TEDA Investment Ltd, were the other firms who purchased the shares sold by AXA. Goldman Sachs'12.02 percent holding now makes them the second largest shareholder in Taikang Life.
Speaking at the signing ceremony, Goldman Sachs Vice Chairman and Chairman of Asia, J. Michael Evans spoke of his delight at having successfully completed the acquisition. "We are thrilled to have the opportunity to be an investor, to participate in the continued growth of the insurance industry in China," Evans said. A deal with AXA had been established last year but attaining Chinese regulatory approval has been a protracted process, particularly as it had involved the transaction of an ownership stake in a state-owned asset.
Goldman Sachs has had prior insurance investment experience in China, having previously purchased a stake in Ping An Insurance Co. along with Morgan Stanley in 1994. Goldman's, however, is now using its own balance sheet in buying the Taikang Life stake, while previous Chinese investments were purchased through the company's private equity arm. Industry analysts conclude that this direct investment move by Goldman Sachs was made to avoid conflict with new U.S regulations, which will require banks to wind down their positions in private equity and hedge fund activity. Goldman's is furthermore looking to diversify its investment portfolio to combat the relatively mediocre performance projected in the global commodities and currency trading industry.
Beijing-based Taikang Life stated it had gross premiums of CNY86.77 billion (US$13.22 billion) for 2010. The company has branch offices in 28 different Chinese provinces, assets in excess of CNY290 billion (USD$44.34 billion), and more than 54 million customers throughout the country. Taikang is expected to be China's fifth listed insurer when the company eventually submits its IPO, alongside existing providers China Life Insurance Co., China Pacific Insurance Co. Ltd., Ping An Insurance Co. of China Ltd., and the Hong Kong listed PICC Property and Casualty Co.
Chen Dongsheng, Founding Chairman and Chief Executive Officer of Taikang Life, said the insurer plans to collaborate with Goldman Sachs to develop investments and expand abroad: "I look forward to working in close cooperation with this world class financial institution as we continue to commit ourselves to the development of China's life insurance market and strive to become more global." Analysts predict that, as a shareholder, Goldman Sachs will facilitate Taikang's initial public offering relatively quickly. An IPO in Hong Kong would look to raise between USD$3 to USD$4 billion.
The Chinese insurance market has been seen as a lucrative investment destination for many large multinational investors from the financial-services sector. Industry analysts predict China and India (both of which presently have a low market penetration rate for life insurance) will become the main drivers of global life insurance premium growth, as persistent economic growth in these large countries will boost the size and purchasing power of their middle class. In 2009, the Chinese life insurance market generated USD$124 billion in premium income. Credit Suisse projects that this figure will grow by more than 20 percent per year for the next decade. Foreign insurance companies have normally found success in China through investing and operating through joint venture partners with another major local insurance conglomerate.
Goldman Sachs' asset-management rivals have already been generating strong returns through their investments in China. The Carlyle Group's venture in China Pacific Insurance is projected to have it's best ever exit, profiting six times on its investment, after it recently sold down a US$2.6 billion stake. TPG sold a US$2.4 billion stake in Ping An Insurance last year, an estimated return of around 16 times its acquisition cost. In February, Zurich Financial Services agreed to sell 5 percent of it's holdings in New China Life Insurance Co Ltd. for US$500 million,
retaining a 15 percent stake in an asset they had invested a reported total of $131 million in, now valued at about US$1.5 billion.
Goldman Sachs Group
Goldman Sachs Group Inc. is a global investment banking and securities firm which engages in investment banking, securities services, investment management and other financial services primarily with institutional clients. Goldman Sachs was founded in 1869, and has offices in all major international financial centers, and provides mergers and acquisitions advice, underwriting services, asset management, and securities services to its clients, which include corporations, governments and high net worth individuals around the world. The firm also engages in proprietary trading and private equity deals. It is a primary dealer in the United States Treasury security market.
Taikang Life Insurance was founded in Beijing in 1996 and offers life, annuity and health insurance through 120 offices throughout China,
AXA Group is a worldwide leader in Financial Services. Headquartered in Paris, the AXA Group companies are engaged in life insurance, health insurance and asset management services among others. AXA's operations are diverse geographically, with major operations in Europe, North America and the Asia/Pacific area.