SAFE Investments Required to Pay CNY4.06bn Once

China's insurance protection fund has inked a contract to sell a 38.815 percent stake in New China Life Insurance Co., Ltd. to China SAFE Investments Ltd.

The deal, worth CNY 4.06 billion, or CNY 8.71 per share, has in principle gained approval from both the Ministry of Finance (MoF) and the China Insurance Regulatory Commission (CIRC). And its completion will mainly depend on whether the buyer could pay the CNY 4.06 billion once, said people close to the matter.

According to contract both sides signed, SAFE Investments should pay the capital to the insurance protection fund within 20 days starting from the day the deal wins a nod from the CIRC. It could ask for a one-month extended period provided that it has financial strain. If it could still not totally pay the capital, a grace period should be available by the insurance protection fund. But SAFE Investments should pay related interest at prime bank loan interest rates. The insurance protection fund has the right to terminate the contract and sell the 38.815 percent New China Life stake to others provided that SAFE Investments fails to totally pay the CNY 4.06 billion within the grace period.

CNY 4.06 billion is a drop in the ocean for SAFE Investments, said industry experts. It was established in December 2003 and acts as a wholly-owned subsidiary of the nation's USD 200 billion sovereign wealth fund China Investment Corp., currently. The stake it controls in Industrial and Commercial Bank of China (ICBC, SHSE: 601398, and SEHK: 1398), Bank of China (BoC, SEHK: 3988 and SHSE: 601988), Bank of Communications (BoCom, SEHK: 3328 and SHSE: 601328) and China Construction Bank (CCB, SHSE: 601939, and SEHK: 0939) ranges from 35 percent to 68 percent. And return on investment it gained from them had exceeded CNY 100 billion accumulatively as at the start of 2009. In addition to commercial banks, it has stretched out reach to stake in a list of securities brokers.

New China Life was established in Beijing in August 1996 and had over 1,200 branches and outlets across the country as at the end of June 2009. The premium revenue it gained in the first three quarters of this year totaled CNY 49.11 billion, ranking number four in the domestic life insurance sector.