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Stocks fall on Ping An unlocking

By Hu Yuanyuan (China Daily)
Updated: 2010-02-24 09:26

Around 860 million shares of Ping An Insurance will become tradable on March 1 when a three-year lock-up period ends. [China Daily]

Ping An Insurance, China's second-biggest insurer, said yesterday three of its shareholders would sell 860 million restricted A-shares over the next five years, triggering a sell-off of its Shanghai shares and dragging the Shanghai Composite Index below 3,000 points.

From March 1, the three Shenzhen-based founding shareholders could sell 859.8 million shares, representing about 11.7 percent of Ping An's existing share capital, after the expiry of a three-year lock-up period, the insurer said in a statement to the Shanghai bourse.

"As the three shareholders bought their shares at a pretty low price, probably 1 or 2 yuan, they could chalk up hefty gains at the current market price of more than 44 yuan a piece. Market concern over the sale weighed down the share price," said Wang Xiaogang, a senior analyst at Shanghai-based Orient Securities.

Shanghai-listed A shares of Ping An plummeted 8.88 percent to 44.72 yuan yesterday, reaching a more than five-month low. The drop is also the biggest since Jan 21, 2008, when Ping An announced its plan to issue 1.2 billion A-shares.

A slide in Ping An also put pressure on other insurers. China Life, the nation's largest insurer, dropped 3.1 percent to 26.83 yuan. China Pacific, the third largest, slid 3.4 percent to 23.91 yuan, after falling as much as 7.1 percent.

The three companies, which are among the 10 biggest by market weighting on the Shanghai gauge, also pulled the Shanghai Composite Index down to 2982.58, a fall of 0.7 percent. The gauge has slumped 9 percent so far this year.

Li Daxiao, head of the research institute with Shenzhen-based Yingda Securities, said the market overreacted to Ping An's plan.

"In fact, a five-year plan is much better than a one-off sale, and the near 10-yuan price gap between Ping An's A-shares and H-shares make its A-shares a comparatively safe buy," said Li.

According to the statement, shareholders can only unload up to 30 percent of their respective holdings each year. The three shareholders - Shenzhen New Horse Investment Development Co Ltd, Shenzhen Jingao Industrial Development Co Ltd and Shenzhen Jiangnan Industrial Development Co Ltd - hold 5.3 percent, 4.51 percent and 1.89 percent respectively in Ping An.

Wang Xiaogang said the number of Ping An's A shares available for sale this year is not large.

Even based on 30 percent, the largest proportion allowed, 290 million locked-up shares could be sold, accounting for 7.48 percent of all the tradable shares on the market. If calculated by an average of 20 percent each year, the proportion would fall to 4.38 percent.

"Moreover, the plan will not change Ping An's valuation, which has been pretty attractive among all Chinese insurance stocks," said Wang. "It's near the short-term bottom right here."

But for some analysts, the market's performance yesterday reflects how weak sentiment is.

"The market is very sensitive to any increase in stock supply now, especially from big-cap stocks, when the government is adopting tighter policies," Larry Wan, deputy chief investment officer at KBC-Goldstate Fund Management Co was quoted by Bloomberg as saying.