In the News: HSBC Insurance Buyout; Kingsoft Cloud IPO; and Online Lending Rules
May 11, 2020 | BY
Vincent ChowHSBC becomes sole controller of Chinese life insurance venture; first U.S. IPO from China after Luckin scandal raises $510 million; and the CBIRC proposes new rules to regulate online lending.
HSBC to take full control over China life insurance JV
HSBC is taking full control of its life insurance joint-venture (JV) in China on the back of new foreign ownership rules that took effect in January. The global bank announced on May 4 that it will be the sole controller of HSBC Life China following the buyout of its JV partner National Trust Ltd's 50% stake in the business. The deal will involve a transfer of equity interest and is subject to regulatory approvals, including from the China Banking and Insurance Regulatory Commission, the bank said. No financial details were disclosed.
Established in 2009, HSBC Life China is headquartered in Shanghai. It had a registered capital of $145.89 million as of December 2019, with a presence in nine cities around China. It offers clients a range of insurance products including annuity, whole life and critical illness. "This transaction supports our ambition to accelerate growth within our Asian franchise, particularly in the dynamic and fast-growing Greater Bay Area, where we fully intend to expand in all lines of businesses," said Noel Quinn, HSBC's Group Chief Executive.
Many global insurers want to succeed in China, the world's third-largest insurance market after the United States and Japan. However, restrictions on foreign ownership capping it at 50% have long limited foreign insurers' ability to expand their operations in the country, where domestic insurers dominate as a result. According to consulting firm McKinsey and Co., foreign insurers enjoy less than 10% of market share in mainland China's life and general insurance markets. This figure will likely rise now under new rules allowing foreign insurers to fully own their life insurance JVs in the country, which came into effect in January, one year ahead of schedule. In July, China also announced that it would no longer require foreign insurers to have a 30-year track record before they can enter the mainland market.
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Kingsoft Cloud raises $510 million in Nasdaq IPO
Kingsoft Cloud, a cloud services company backed by Chinese smartphone giant Xiaomi Corp., raised $510 million in its initial public offering (IPO) in New York. Shares in the company rose 40% in the IPO on the Nasdaq, giving the company a market value of $4.77 billion at the end of the first day of trading on May 8.
The company, an affiliate of Hong Kong-listed Kingsoft Corp, is the third-biggest cloud services provider in China by revenue according to its filings with the U.S. Securities and Exchange Commission. Its chairman, Lei Jun, is CEO of Xiaomi Corp., which will now own about 14% of the company following the IPO—the biggest by a Chinese company in the U.S. in 2020, according to Bloomberg.
There was much attention on Kingsoft Cloud's IPO due to it being the first New York listing by a Chinese company since the Luckin Coffee accounting scandal broke out in early April. Luckin's shares plummeted more than 75% in a single day following the company's announcement of the alleged fraud. Bloomberg reported Henry He, Kingsoft Cloud's chief financial officer, as saying that Kingsoft Cloud's financial performance is reliable due to publicly available records about the company's financials, including those associated with its Hong Kong-listed parent company, which investors can scrutinize. Currently, a bill proposing to delist Chinese companies that fail to comply with U.S. financial disclosure requirements is being considered in the U.S. Congress. Chinese companies have traditionally refused to disclose certain financial information considered state secrets under Chinese law.
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China proposes online bank lending rules to curb risks
China's banking regulator is tightening rules surrounding commercial banks' online lending operations in a bid to curb financial risks. The China Banking and Insurance Regulatory Commission (CBIRC) released draft rules on May 9 proposing to ban risky investments funded by these loans and to cap banks' online consumer credit for each client at 200,000 yuan ($28,276). Public comments are being solicited until Jun. 9.
The 70-article draft rules are the first surrounding banks' online lending. The rules propose to bar online loans from being used to fund property, stocks, bonds, futures, and other risky investments. A CBIRC spokesperson said the rules are necessary because of problems surrounding online lending including inadequate risk management, financial consumer protection, and other hidden risks.
China's online banking sector has accelerated rapidly in recent years in line with broader developments in the country's fintech industry. In August, China's central bank released a three-year plan for the fintech industry, one of the highlights being the need to curb financial risks. In January, Reuters reported that China is finalizing its first-ever regulations for online-only banks. According to the report, both local and foreign banks will be permitted to establish separate online and offline operations under new regulations aiming to minimize risk and attract foreign players.
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