By Julie Zhu
HONG KONG (Reuters) - Chinese authorities have asked Ping An Insurance Group to take a controlling stake in embattled Country Garden, the nation's biggest private property developer, Reuters reported on Wednesday, citing sources familiar with the plan.
A state-engineered rescue of Country Garden by Ping An would be one of the most significant interventions to date by China to support its cash-squeezed, highly indebted property sector, which accounts for one-quarter of economic activity. The sector's growing debt defaults have sparked fears of a broader financial crisis, battering investor confidence and spooking potential home buyers.
WHO IS PING AN?
Established in 1988, Ping An, which literally means "peace and safety", started off as a property and causality insurer and later expanded into life insurance, banking, investment and asset management.
Ping An, based in the southern tech hub of Shenzhen, vies with China Life for the title of the country's biggest insurance group by market value. It had total assets of 11.47 trillion yuan ($1.58 trillion) and more than 229 million retail customers as of end-June, according to its latest interim report.
It has in recent years been allocating 1% of its annual revenue to research and development, focusing on new technologies and building up expertise in the fintech and healthcare-related areas.
A number of its units including Lufax Holding, OneConnect and Ping An Healthcare and Technology have gone public in New York and Hong Kong.
The financial conglomerate is led by founder and chairman Ma Mingzhe, whose surname means "horse" in Mandarin.
Ping An is one of the first Chinese financial institutions that brought in foreign investors Morgan Stanley and Goldman Sachs in the 1990s.
In 2002, HSBC took a 10% stake in the company.
Ping An first reported in late 2017 it owned a 5% stake in HSBC and later boosted its stake. As HSBC's biggest shareholder, Ping An has pushed the European lender to split off its Asian business to boost returns.
Ping An went public in Hong Kong in 2004, followed by a listing in Shanghai three years later.
It counts state firms including Shenzhen Investment Holdings Co and Central Huijin Investment and a unit of Thai conglomerate Charoen Pokphand Group (CP Group) among its top shareholders.
WHO IS COUNTRY GARDEN?
Until this year, Country Garden was the largest Chinese developer by sales. The company was previously considered financially sound compared with peers such as China Evergrande (HK:3333) Group, which defaulted on its debt in late 2021.
Country Garden had total liabilities of 1.4 trillion yuan ($191.46 billion) at the end of June, including nearly $11 billion of offshore bonds and $6 billion of offshore loans.
While Country Garden's liabilities are only 59% as large as those of Evergrande, the world's most indebted developer, it has more than 3,000 projects under development nationwide, compared to around 800 for Evergrande.
Regulators and homebuyers are closely watching whether Country Garden's liquidity stress will make it unable to complete homes, which could stir social unrest.
Country Garden has said repeatedly that "home delivery" is its top priority.
WHY HAS BEIJING PICKED PING AN TO RESCUE COUNTRY GARDEN?
Reuters reported that Chinese authorities are keen that any risks posed by Country Garden's liquidity problems should not spill over into the wider economy.
Authorities would prefer the developer's liquidity problems be resolved within Guangdong province, as per the report. Ping An was a natural choice because it is based in Guangdong and has been a major Country Garden shareholder, said the sources.
Ping An said after the Reuters report that it no longer holds Country Garden shares. It held a 4.99% stake as of Aug. 11, according to Hong Kong stock exchange data.
Country Garden's largest shareholder, with a stake of about 52%, is Yang Huiyan, chairperson and daughter of a co-founder.
HOW BIG IS PING AN'S EXPOSURE TO REAL ESTATE?
Ping An's property investments through its insurance funds stood at 209.4 billion yuan ($28.64 billion), or 4.5% of its total insurance investment assets as of end June, according to the interim report.
The insurer was looking for more real estate-related investment opportunities and was considering investing hundreds of billions of yuan of insurance funds in long-term rental apartments and public housing, then company President Alex Ren said 2019.
Reuters reported in 2021 that Chinese regulator probed Ping An's investments in the property market and ordered the insurer to stop selling alternative investment products, which are typically tied to the property market.
($1 = 7.2790 Chinese yuan)