China Pacific Insurance (Group) Co is expected to defer its planned US$1-billion initial public offering in Hong Kong to the second half of next year, financial sources close to the situation said yesterday.

The country's third-largest life insurer has terminated its client relationship with auditor PricewaterhouseCoopers (PwC), which has been working for China Pacific on IPO-related jobs for about four years, the sources said.

China Pacific had also decided to stop hiring Kind & Wood as its legal consultant for the IPO, they said.

The insurer had been planning to list in Hong Kong in the first half of next year, after delaying the IPO several times before, they said. The reasons for delaying the IPO again were unclear.

Gao Guofu, China Pacific's chairman since July, told a recent internal meeting that after the Hong Kong IPO, China Pacific planned to renegotiate with Insurance Australia Group a US$280-million deal in which IAG had agreed in principle to buy nearly 25 per cent of the non-life insurance arm of China Pacific group, the sources said.

"We are still in the process of completing our agreement with CPPI," an IAG spokeswoman said in Sydney without elaborating.

CPPI is China Pacific Property Insurance Co, the non-life insurance arm of the Shanghai-based China Pacific group.

China Pacific and PwC declined to comment.

"It's a big surprise to PwC," one insurance industry veteran in Shanghai told Reuters on condition of anonymity.

"It's certain that the China Pacific IPO will be delayed as the company now cannot use PwC's IPO auditing report as part of its IPO documents, and you need to redo everything from the very beginning which is quite time-consuming," he added.

Another financial source in Shanghai said China Pacific Insurance was unlikely to file its IPO application with Hong Kong's stock regulator before the Chinese New Year in February, since the insurer had not yet chosen a new IPO auditor.

China Pacific group sold a 25 per cent stake in its life insurance arm to Carlyle Group and Prudential Financial, a US insurer, for US$400 million last year.

It hired Switzerland's UBS in April as its financial adviser for the Hong Kong IPO, while others including Morgan Stanley's local partner China International Capital Corp are also pitching the insurer for roles in its underwriter team, the sources said.

Chairman change

Wang Guoliang, former chairman of China Pacific, resigned in July as part of what analysts said was a Beijing-led shake-up of top executives at big State-owned financial firms. Shanghai's city government assigned Gao, former head of a local real estate and construction company, to replace Wang.

"Gao is a very decisive person," said one source close to him, adding that Gao might have decided to cut ties with PwC and Kind & Wood partly because he wanted to underline his independence from his predecessor.

"He wants to give people a fresh image, not only of the group, but also of the company management," the source said.