Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Fubon Financial Holding Co / Event-Driven

<a href="https://www.smartkarma.com/entities/fubon-financial-holding-co" target="_blank" data-smartkarma-citation="entities:11869:1" rel="noopener">Fubon Financial Holding Co (2881 TT)</a> announced many months ago when it took over <a href="https://www.smartkarma.com/entities/jih-sun-financial-holdings" target="_blank" data-smartkarma-citation="entities:17971:1" rel="noopener">Jih Sun Financial (5820 TT)</a> that it would do an equity raise to do so. In Taiwan, doing an equity raise via rights issue is a relatively common event. The company applied to do so, got permission in early August, then announced in late August a timeline and key details as it announced its H1 results. <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> discussed this rights issue in <a href="https://www.smartkarma.com/insights/fubon-financial-holding-co-2881-tt-rights-issue" target="_blank" data-smartkarma-citation="insights:56572" rel="noopener">Fubon Financial Holding Co (2881 TT): Rights Issue</a> a week ago. Pricing was expected to be confirmed in the days ahead, and it has been confirmed. The 548,000,000 common shares will be issued at NT$58.9/share each. The 333,330,000 C Class Preferred Shares (non-cumulative dividend) will be issued at NT$60/share each. The dividend rate was set at 3.0% (7yr IRS + a fixed spread (7yr IRS 0.6538% + 2.3462% spread)). I called the company to chat and had some questions. They got back to me today.

Fubon Financial Holding Co (2881 TT) announced many months ago when it took over Jih Sun Financial (5820 TT) that it would do an equity raise to do so. In Taiwan, doing an equity raise via rights issue is a relatively common event. The company applied to do so, got permission in early August, then announced in late August a timeline and key details as it announced its H1 results. Janaghan Jeyakumar, CFA discussed this rights issue in Fubon Financial Holding Co (2881 TT): Rights Issue a week ago. Pricing was expected to be confirmed in the days ahead, and it has been confirmed. The 548,000,000 common shares will be issued at NT$58.9/share each. The 333,330,000 C Class Preferred Shares (non-cumulative dividend) will be issued at NT$60/share each. The dividend rate was set at 3.0% (7yr IRS + a fixed spread (7yr IRS 0.6538% + 2.3462% spread)). I called the company to chat and had some questions. They got back to me today. 

Fubon Financial Rights - Common Share Rights Should Be Exercised, Pref Rights Are Worth Near Zero

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Regulatory Onslaught Continues: The China Banking and Insurance Regulatory Commission (CBIRC) announced that it is investigating Ping An Insurance’ (2318.HK) [Ping An] property investments. Regulatory scrutiny of Ping An is occurring against the backdrop of the country’s skyrocketing real estate market and excessive leverage to the sector. This is on top of the CBIRC’s roll out of the internet insurance revision plan, which aims to scrutinize mainland China’s insurance technology platforms to which Ping An too has exposure; and*Improving Overall Fundamentals: Ping An’s reported 1H21 results of CNY 58.0 bn, declined CNY 16.4 bn (22.0%) HOH related to the above real estate risk. Excluding the real estate write-downs, we note that Ping An’s HOH operating result would have actually improved CNY 8.2 bn or 11.0% on the back of insurance fundamental improvement nearly across the board.

*Regulatory Onslaught Continues: The China Banking and Insurance Regulatory Commission (CBIRC) announced that it is investigating Ping An Insurance’ (2318.HK) [Ping An] property investments. Regulatory scrutiny of Ping An is occurring against the backdrop of the country’s skyrocketing real estate market and excessive leverage to the sector. This is on top of the CBIRC’s roll out of the internet insurance revision plan, which aims to scrutinize mainland China’s insurance technology platforms to which Ping An too has exposure; and*Improving Overall Fundamentals: Ping An’s reported 1H21 results of CNY 58.0 bn, declined CNY 16.4 bn (22.0%) HOH related to the above real estate risk. Excluding the real estate write-downs, we note that Ping An’s HOH operating result would have actually improved CNY 8.2 bn or 11.0% on the back of insurance fundamental improvement nearly across the board.

*Weak Results Mask Improving Overall Fundamentals: Ping An Insurance (2318.HK) [Ping An] reported 1H21 results of CNY 58.0 bn, declining CNY 16.4 bn (22.0%) HOH.  Much of the struggle this half appears to be centered in Ping An’s investment portfolio which caused its net investment yield to plummet 80 bp to 4.1%. This resulted in substantial HOH net profit declines of CNY 20.4 bn (40.6%) and CNY 3.0 bn (48.4%) at Ping An Life (PAL) and Ping An Technology, respectively.  Excluding both write-downs, we note that Ping An’s HOH operating result would have actually improved CNY 8.2 bn or 11.0%; and*Concerns Increase At Bank And With Expansion Plans: Ping An Bank (000001.CH) [PAB] reported 2Q21 reported results of CNY 7.5 bn – decreasing CNY 2.7 bn (26.4%) linked quarter driven by credit concerns and weaker net interest income. In addition, Ping An is investing between CNY 37-51 bn in order to restructure the messy Founder Group, which will no doubt be a distraction for the Group just as fundamentals have begun to turn.

*Weak Results Mask Improving Overall Fundamentals: Ping An Insurance (2318.HK) [Ping An] reported 1H21 results of CNY 58.0 bn, declining CNY 16.4 bn (22.0%) HOH.  Much of the struggle this half appears to be centered in Ping An’s investment portfolio which caused its net investment yield to plummet 80 bp to 4.1%. This resulted in substantial HOH net profit declines of CNY 20.4 bn (40.6%) and CNY 3.0 bn (48.4%) at Ping An Life (PAL) and Ping An Technology, respectively.  Excluding both write-downs, we note that Ping An’s HOH operating result would have actually improved CNY 8.2 bn or 11.0%; and*Concerns Increase At Bank And With Expansion Plans: Ping An Bank (000001.CH) [PAB] reported 2Q21 reported results of CNY 7.5 bn – decreasing CNY 2.7 bn (26.4%) linked quarter driven by credit concerns and weaker net interest income. In addition, Ping An is investing between CNY 37-51 bn in order to restructure the messy Founder Group, which will no doubt be a distraction for the Group just as fundamentals have begun to turn.

Ping An Insurance – Looking Beyond The Investment Book

ZhongAn Online P&C Insurance C / Equity Bottom-Up

*CBIRC Now Taking On Online Insurers: The China Banking and Insurance Regulatory Commission’s (CBIRC) roll out of the internet insurance revision plan “Notice on Carrying out Special Rectification of Internet Insurance Disorders” aims to scrutinize mainland China’s insurance technology platforms, ordering firms and agencies to end improper marketing and pricing practices, and improve privacy protections; and*Very Negative Implications For Insurers And Broader Market: This move by the CBIRC would intimate the near wipeout of the current generation of online insurers. This regulatory onslaught is stifling innovation and likely push business returns to well below the cost of equity. This heavy-handed approach is causing the outflow of foreign capital from mainland China to be sustainably heavy for an extended period of time.

*CBIRC Now Taking On Online Insurers: The China Banking and Insurance Regulatory Commission’s (CBIRC) roll out of the internet insurance revision plan “Notice on Carrying out Special Rectification of Internet Insurance Disorders” aims to scrutinize mainland China’s insurance technology platforms, ordering firms and agencies to end improper marketing and pricing practices, and improve privacy protections; and*Very Negative Implications For Insurers And Broader Market: This move by the CBIRC would intimate the near wipeout of the current generation of online insurers. This regulatory onslaught is stifling innovation and likely push business returns to well below the cost of equity. This heavy-handed approach is causing the outflow of foreign capital from mainland China to be sustainably heavy for an extended period of time.

ZhongAn Online P&C Insurance – Tapped By The Ugly Stick

Thematic (Sector/Industry)

*Document 15: Recently the China Bank and Insurance Regulatory Commission (CBIRC) issued guidance to both banks and insurers on implicit debt of local government financing vehicles (LGFV) via Document 15 – tightening the screws even further;  and*No Let Up In Sight: Coupled with the structural reforms of an increase in risk-based capital minimums for certain state banks, the partial bank Wealth Management Product (WMP) resolution, and the recent reserve requirement ratio (RRR) reduction, these tightening measures should act to contain some of the out of control financial risk within the mainland Chinese financial system.

*Document 15: Recently the China Bank and Insurance Regulatory Commission (CBIRC) issued guidance to both banks and insurers on implicit debt of local government financing vehicles (LGFV) via Document 15 – tightening the screws even further;  and*No Let Up In Sight: Coupled with the structural reforms of an increase in risk-based capital minimums for certain state banks, the partial bank Wealth Management Product (WMP) resolution, and the recent reserve requirement ratio (RRR) reduction, these tightening measures should act to contain some of the out of control financial risk within the mainland Chinese financial system.

Hong Kong

China Taiping Insurance Holdings Company Ltd., through subsidiaries, underwrites life and property/casualty insurance and reinsurance.

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China Taiping Insurance Hldgs (966 HK)

Ping An Insurance - Ugggh

PING AN INSURANCE: The CBIRC is investigating Ping An's property investments against the backdrop of the country’s skyrocketing real estate market...

Thomas J. Monaco

Ping An Insurance – Looking Beyond The Investment Book

PING AN INSURANCE: Weak results mask PAI's improving overall fundamentals, as 1H21 HOH declined 22.0% mainly due to investment risk. Excluding the...

Thomas J. Monaco

ZhongAn Online P&C Insurance – Tapped By The Ugly Stick

ZHONGAN ONLINE INSURANCE: The CBIRC has rolled out the “Notice on Carrying out Special Rectification of Internet Insurance Disorders”, ordering...

Thomas J. Monaco

China Banks – Screws Tighten On LGFVs

CHINA BANKS: Recently the CBIRC issued guidance on implicit LGFV debt via Document 15 – further tightening the screws on mainland China's financial...

Thomas J. Monaco

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52-week Range

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Fubon Financial Rights - Common Share Rights Should Be Exercised, Pref Rights Are Worth Near Zero

Fubon Financial will issue Rights. Rights go ex- on 6 Sep. The Common Share Rights are worth exercising unless the stock plummets. The Pref Rights...

Travis Lundy

Ping An Insurance - Ugggh

PING AN INSURANCE: The CBIRC is investigating Ping An's property investments against the backdrop of the country’s skyrocketing real estate market...

Thomas J. Monaco

Ping An Insurance – Looking Beyond The Investment Book

PING AN INSURANCE: Weak results mask PAI's improving overall fundamentals, as 1H21 HOH declined 22.0% mainly due to investment risk. Excluding the...

Thomas J. Monaco

ZhongAn Online P&C Insurance – Tapped By The Ugly Stick

ZHONGAN ONLINE INSURANCE: The CBIRC has rolled out the “Notice on Carrying out Special Rectification of Internet Insurance Disorders”, ordering...

Thomas J. Monaco

China Banks – Screws Tighten On LGFVs

CHINA BANKS: Recently the CBIRC issued guidance on implicit LGFV debt via Document 15 – further tightening the screws on mainland China's financial...

Thomas J. Monaco