Ping An to issue bond to boost capital levels

Ping An Insurance (Group) Co of China Ltd is planning a 26 billion yuan ($4.2 billion) convertible bond issue to boost its capital reserves.

The bonds, still awaiting regulatory approval in China, will support the financial conglomerate's development, especially its banking business, over the next two to three years, said group president Alex Ren in Hong Kong on Friday.

He added the group, considered the world's second-largest insurer by market value, is also considering letting its subsidiaries issue subordinated debt, without elaborating.

Ren made the remarks after reporting that Ping An's net profits grew by 3 percent in 2012, the slowest pace in three years, as strong growth in its banking business was offset by a decline in its major insurance business.

A major chunk of the funds raised through the bond issuing will be used to support Ping An Bank, the group's main banking business, said Ren.

Its banking operation completed the acquisition of Shenzhen Development Bank last year, giving it a substantial increase in customers.

It raked in 13.51 billion yuan in profits during the year, up more than 30 percent year-on-year, and contributed 6.87 billion yuan to group profits.

Its total loan book grew 16.1 percent to 720 billion yuan, on the back of a 20 percent growth in deposits to 1.02 trillion yuan.

Total assets grew a staggering 27.7 percent in light of the acquisition.

But the bank's overall balance sheet weakened on the back of rapid growth in loans, increasing the need for a capital injection.

Its non-performing loan ratio grew by a third to 0.95 percent from 0.53 percent a year earlier. The provision coverage ratio, a measure of protection against bad loans, nearly halved to 182.32 percent, from 320.66 percent.

Shao Ping, president of Ping An Bank, said the growth in non-performing loans stemmed from small and medium-sized enterprise loans in Zhejiang and Jiangsu provinces, as many SMEs there struggled to stay solvent in the economic slowdown.

He acknowledged that there are risks in Ping An's loan book, but insisted the risks were manageable.

The bank's capital adequacy ratio dropped slightly to 11.37 percent, but that was still above the regulatory red line of 9.5 percent.

In comparison, Ping An's insurance business, especially life insurance, declined amid industry-wide weakness last year. Profit from the life business dropped 35.3 percent year-on-year to 6.46 billion yuan. Its property and casualty insurance business saw a 6.6 percent profit decline to 4.65 billion yuan.

Meanwhile, a 9.5 billion yuan loss by its investment business, a nearly nine-fold increase on last year, dragged down group profits.

The group attributed the loss to a fluctuation in the A-share market over the past two years.

Ren said Ping An plans to trim its equity holdings and increase positions on fixed-income tools as a way to mitigate the fluctuations in its investment income.