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Carlyle’s China Pacific bid approved

The US buyout firm is set to complete one of the largest private equity deals seen in China, having gained approval from the parent company of China Pacific Life Insurance.

Directors of China Pacific Insurance Group yesterday gave their approval for the $400 million (€321 million) acquisition of a 25 percent stake in subsidiary China Pacific Life Insurance by private equity firm Carlyle Group and its bid partner Prudential, the US insurer. The agreement followed 18 months of talks. 

The drawn-out timeframe has partly been attributed to the bureaucratic pitfalls that have so far limited the development of a buyout market in China. The deal was also reportedly help up by some adverse shareholder sentiment: the Financial Times reported that steelmaker Baosteel in particular had expressed reservations.

Carlyle and Prudential have an option to increase their holding to 49 percent should the rules that currently restrict foreign ownership to a maximum of 25 percent be changed. Carlyle has reportedly agreed to hold its stake for at least three years and will only sell its shares to either Prudential or other international financial institutions.

It is not yet known whether Carlyle and Prudential successfully negotiated key management provisions. Last week, it was reported in the South China Morning Post that the bid had been made conditional upon an ability to appoint five key executives to the target company, including a chief investment officer and chief actuary.   

The bid was assisted by a looming deadline for China Pacific Life to submit a proposal to the insurance regulator detailing how it would improve its solvency position. The proposal has to be submitted by end of October.   

Despite the difficulties of concluding deals, investors are attracted to the Chinese insurance market by the country’s rapid economic growth, a high savings rate and a lack of investment options. The market is growing at 25 percent per annum and generated $52 billion of premiums last year.

China Pacific Insurance Group, the parent company, has not commented on reports that it has been separately approached regarding a strategic investment by Singapore’s Temasek Holdings and Primus Pacific Partners, a US firm currently raising a $1 billion fund for investment in Asian financial services.