SHANGHAI (Reuters) – Ping An Insurance (601318.SS) (2318.HK), China’s No.2 insurer, plans to launch a private equity arm this year, said two sources with direct knowledge of the plan, as Beijing encourages private equity investment to bolster the economy.
Ping An Capital, initially capitalised at 20 billion yuan ($2.93 billion), will aim to raise more than 5 billion yuan in its first private equity fund to invest in unlisted companies, corporate bonds, infrastructure projects such as bridges and ports, and real estate projects, the sources said.
China has been encouraging private equity investment as an additional source of corporate funding, as banks become cautious in lending to the private sector while initial public equity offerings have dried up during an extended market downturn.
China’s insurance regulator said last month it would expand investment options for insurance companies, including to investments in unlisted companies, to help them improve returns during the financial crisis.
“Insurers are actively seeking new investment channels for their premium income,” said Peng Yulong, analyst at Guotai Junan Securities Co. “Their money is long-term in nature, so they would have enough time to nurture private equity projects.”
Ping An is now applying for regulatory approvals for the private equity fund, and these should be granted soon, the sources said. They asked not to be named because they were not authorised to talk to the media.
Ping An also operates a bank, a trust unit and a brokerage, and its chairman Peter Ma has laid out ambitious plans to expand as a full-range financial conglomerate.
China is encouraging insurers to fund development of the domestic economy, and China’s top insurance regulator Wu Dingfu has called on insurers to invest more in infrastructure projects to support the government’s 4 trillion yuan stimulus package.
“This is certainly a good opportunity for insurers to expand into the private equity sector and help boost China’s economic growth,” one of the sources said.
“China’s infrastructure and real estate sectors are still attractive and in need of capital,” he added.
Ping An has already invested in a number of infrastructure projects in China after receiving government approval on a case-by-case basis, including a recently launched high-speed rail project that will link Beijing and Shanghai.
The government at the same time has pressured insurers to trim their overseas ambitions, after Ping An’s failed investment in Dutch-Belgian financial services group Fortis NV (FOR.BR) (FOR.AS).
Ping An, which holds 4.99 percent of Fortis, booked a 15.7 billion yuan loss in the third quarter to mark down the value of the stake. ($1=6.838 Yuan)
By George Chen and Helen Ding
(Additional reporting by Samuel Shen; Editing by Edmund Klamann and Ian Geoghegan)