PICC increases 6.9% on HK trading debut

People's Insurance Co (Group) of China jumped on its first trading day in Hong Kong on Friday, as investors snapped up its shares, priced near the bottom of the price range.

Shares of PICC, one of China's biggest insurers, stood at HK$3.72 ($0.48) at the close on Friday, around 6.9 percent higher than its HK$3.48 issuing price announced on Thursday. The issuing price range was earlier set at HK$3.42 to HK$4.03. PICC raised around HK$23.2 billion after commissions in the biggest IPO so far this year in Hong Kong.

Wu Yan, president of People's Insurance Co (Group) of China, at the listing ceremony in Hong Kong on Friday. The company's share prices surged in its Hong Kong trading debut. [Photo/China Daily]

PICC's gain came despite a loss in the benchmark Hang Seng Index, which dipped 0.26 percent, or 58.64 points, to 22191.17 points on Friday.

"The jump is in line with our expectations. PICC's relatively low issuing price helped stoke investors' enthusiasm," said Dickie Wong, research director at Kingston Securities Ltd in Hong Kong.

Wong expects PICC to be 10 percent higher than its issuing price by the end of the year, basing his forecast on the prospect that PICC will be a component stock in most indexes that track China, including the Hang Seng Index and MSCI China. Being part of a major index creates demand from fund companies, some of which track indexes, he said.

A 15-percent green-shoe option has been introduced to ensure share price stability. It would allow PICC to issue an additional 1.03 billion shares and put the total funds raised beyond HK$30 billion.

Before the IPO, PICC already had a property insurance subsidiary listed in Hong Kong. PICC Property and Casualty Co Ltd's shares dropped 0.59 percent, or HK$0.06, to HK$10.12 on Friday, as investors shifted funds to its parent.

"In this case, the mother is more attractive than the son," said Wong when whether investors should buy PICC or PICC Property and Casualty stocks.

"PICC's property insurance is already one of the best, whereas its life insurance, the main business of the parent company, has better potential."

The IPO on Friday ended PICC's three-year marathon to float shares in Hong Kong. News of an A+H share listing first surfaced in 2009, when the group completed an overall restructuring and became legally eligible to go public.

But regulators then rejected its plan to issue shares in Shanghai, so the group chose Hong Kong as its first listing destination. But a Hong Kong IPO was later put on hold amid weak market sentiment.

In fact, PICC had to finish its Hong Kong IPO by the end of the year, or it would have to revisit Hong Kong regulators and go through listing procedures again.

PICC has been on the fast track of growth in recent years, even as other major mainland insurers' growth rates are slowing. Its prospectus shows that the compound annual growth rate of its profit stood at 116.3 percent from 2009 to 2011. In the first half of this year, profit grew 21.9 percent to 4.92 billion yuan. None of the other major mainland insurers' growth remained above 10 percent over the same period.

But PICC's solvency margin ratio, an important indicator that helps to judge whether an insurer is strong enough to pay claims to policyholders as scheduled, has been declining as a result of fast growth, creating the demand for an IPO to raise more funds.

Its solvency margin ratio stood at 156 percent at the end of June, down 9 percentage points from the 165 percent last year. Its health insurance subsidiary, PICC Health Insurance Co Ltd, has a rate of just 101 percent, only 1 percentage point higher than the regulatory red-line of 100 percent.

gaochangxin@chinadaily.com.cn