Singapore's largest insurance group, Great Eastern Holdings Ltd., will acquire no more than 5% of the share capital of New China Life Insurance Co. Ltd., becoming the cornerstone investor of the Beijing-based insurer, which is slated to go public in Hong Kong and Shanghai this December.

Great Eastern Holdings will pay about US$380 million in cash to purchase New China Life's H shares, which are overseas foreign invested ordinary shares of the Chinese insurer that are proposed to be listed on the Stock Exchange of Hong Kong, said Singapore-based Great Eastern Holdings in a statement filed with the Singapore Exchange.

"The investment will allow Great Eastern Holdings and its subsidiaries to increase its representation in the large insurance market in China, which is in line with the group's regional expansion strategy," noted Great Eastern Holdings.

The company said as at Nov. 28, the offer price for each H-share of New China Life has not been fixed, so the actual number of shares to be acquired by the company cannot be determined.

The consideration has taken into account New China Life's historical financial condition and performance, business strategy and model, distribution network and customer base, portfolio mix and asset composition. It has also included the future growth potential and market conditions of New China Life, such as market share, premium growth, embedded value of existing and new insurance business, leverage ratios and solvency measures.

During the six months starting from and inclusive of the date on which the H shares are first listed on the Hong Kong stock exchange, Great Eastern Holdings said it will enter into a lock-up period and cannot sell any equity interests in New China Life without prior approvals of the insurer and its joint global coordinators.

After the lock-up period, Great Eastern Holdings will be free to dispose of the relevant shares, providing it must receive the approval of New China Life and the joint global coordinators for the sale of the shares that account for more than 5% of the total issued H shares of New China Life; and it shall not sell more than 3% of the total issued share capital of New China Life to any other person who engages directly or indirectly in a business that competes or potentially competes with the business of New China Life, according to Great Eastern Holdings.

A solvency margin decline in the third quarter is driving New China Life, the Chinese fourth-largest life insurer, to start its initial public offering and preliminary price consultation activities for its Chinese A-share (Shanghai) and overseas H-share (Hong Kong) offerings in an effort to avoid potential regulatory limitations on its business operations due to inadequate capital (Best's News Service, Nov. 23, 2011).

New China Life earlier said that it had been approved by the China Securities Regulatory Commission to conduct an IPO of up to 158.54 million yuan-denominated ordinary shares in mainland China. The offering will also be conducted concurrently with an overseas H-share offering of up to 358.42 million shares.

State-owned Central Huijin Investment Ltd. is the controlling shareholder of New China Life with a 38.82% stake in the insurer. Another state-owned company, Baosteel Group Corp., has a stake of more than 5%.

Switzerland-based Zurich Financial Services Group holds a 15% stake in New China Life (Best's News Service, July 5, 2011).

New China Life was established on Sept 28, 1996, and now has registered capital of 2.6 billion yuan (US$408 million). In 2010, the insurer generated gross written premiums of 91.68 billion yuan. For the first nine months of 2011, New China Life reported gross premiums of 74.36 billion yuan. Its market share stood at 9.7% at the end of September.

The insurer said it would determine the offer price for the offering on Dec 8. It is expected to have the dual listing in Shanghai and Hong Kong after Dec 12.

China International Capital Corporation Hong Kong Securities Ltd., UBS AG, Hong Kong Branch and Goldman Sachs (Asia) L.L.C. are the joint global coordinators of New China Life.

Great Eastern Holdings is the parent of Singapore-based Great Eastern Life Assurance Co. Ltd., which has a presence in other Asian countries including China, Malaysia and Indonesia.

(By Rebecca Ng, Hong Kong news editor: Rebecca.Ng@ambest.com)