Description of the event
Ping An of China announced that the company plans to issue 3.5 billion USD H share convertible bonds at a conversion price of HK$43.71; it plans to cancel the repurchase of 0.103 billion A shares between 2021 and 2022.
Incident comments
The size of the convertible bond is 3.5 billion yuan, and the coupon interest rate is 0.875%. According to the company's announcement, the $3.5 billion convertible bond has a coupon interest rate of 0.875%, interest is paid every six months, and the conversion price is HK$43.71, with strong redemption clauses (after August 5, 2027, for 30 consecutive days, any 20 days over 130% conversion price or less than 10% of the unredeemed principal amount). If all shares are converted, they will be converted to 0.6 billion shares, accounting for 3.43% of the current total share capital. The maturity date of the bond is July 22, 2029. The purpose of raising capital is to develop the business, supplement capital requirements, support health care and pension strategies, and for general purposes.
Choosing a US dollar convertible bond may mainly take into account the flexibility of terms and financing costs. US dollar convertible bonds have no standard terms and are more flexible; the financing cost of 0.875% convertible bonds is relatively low compared to domestically issued perpetual bonds (Taibao Life Insurance's coupon interest rate 2.38% in 2024, Taikang Life Insurance 2.48%) or capital supplement bonds (issuing Xinhua Insurance with a coupon interest rate of 2.27% in 2024).
It is proposed to cancel 0.56% of the shares to reduce the dilution effect of convertible bonds. The company repurchased 0.103 billion A shares and 0.103 billion A shares during the period from August 27, 2021 to August 26, 2022, accounting for 0.56% of the current total share capital. The original plan was to be used for employee stock ownership plans, but it is proposed to cancel it. The cancellation operation will further reduce the dilution effect of issuing convertible bonds. Take the company's static BPS for the first quarter of 2024 as an example. Assuming full stock conversion, BPS is expected to be diluted by 2.79%.
Strengthen ecological advantages and be optimistic about long-term space. In the medium to long term, the company continues to push forward channel reforms, emphasizes supply-side innovation, and is also deeply involved in healthcare, comprehensive finance, etc., and the current financing use will further strengthen the company's healthcare and pension ecosystem barriers and comprehensive financial layout. It is expected that a more complete ecosystem advantage will help the company build future product and pricing barriers. Currently, the company's 24-year PEV valuation is 0.52 times, in the bottom range, maintaining a “buy” rating.
Risk warning
1. Major adjustments to industry policies;
2. The equity market fluctuated greatly, and interest rates declined sharply.