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China firms keen on US$1b Hong Kong insurance asset auction: sources

[HONG KONG] Property developers and other Chinese firms have shown strong interest to bid for the US$1 billion insurance asset of Hong Kong's Dah Sing as they seek diversification from a slowing mainland economy and a weakening yuan, sources with direct knowledge of the matter said.

The Chinese companies have been very enthusiastic even though some have little or no insurance-sector experience, said the sources.

China's fourth-biggest developer, Country Garden Holdings, and its biggest insurer, China Life , are among those that have flagged their interest, they added.

Since Dah Sing Financial Holdings announced a strategic review of the business on Jan 12, the company and its adviser, Citigroup, have received indications of interest from more than 20 Chinese companies, two sources familiar with the sale process told Reuters. "There is a strong desire among Chinese companies to diversify their country risk and the currency risk," one of the sources said.

Global and regional insurers, including Sun Life Financial, Prudential plc, Metlife Inc and AIA Group, have also expressed a desire to join the bidding race, the sources said.

The identities of the other interested Chinese companies could not be determined. It is not clear which companies will make formal bids.

Country Garden, Prudential, Metlife, Sun Life, AIA and Citigroup declined to comment. China Life did not respond to requests for comment.

Dah Sing did not reply to a request for comment but had said last month a number of options are under the group's consideration as part of the strategic review and that no timetable had been set for its completion.

The sources did not want to be identified because the sale process is confidential.

CAPITAL OUTFLOWS

The Chinese interest showcases a broader problem for the world's second-biggest economy. While its government has been supportive of companies' overseas M&A drive, a surge in outbound purchases, which hit a record $116 billion last year, undercuts Beijing's efforts to tackle its capital-outflow problems.

China has suffered about US$700 billion in capital outflows last year, amid a stock market turmoil and a shock currency devaluation.

Authorities have tried to stem the outflows by intervening heavily in the market and clamping down on various channels to take money overseas.

Chinese corporations have launched another US$60 billion worth of deals in 2016, including ChemChina's record US$43 billion agreed bid for Swiss seeds and pesticides group Syngenta on Wednesday, making it the best start to a year on record.

Bankers say their China outbound M&A pipeline is strong and many are betting on another bumper year, which will only add to Beijing's nervousness about capital outflows.

"We aren't seeing deals being impacted by capital controls issues," said the head of M&A at a Wall Street investment bank.

"On the contrary, we are seeing more new clients showing interest in buying overseas assets," the person said, adding that his team spends about 70 percent of its time on China deals.

The Chinese suitors' aggressive overseas M&A push could lead to them overpaying for assets or make their global rivals pay top dollar to win bids.

"In an attempt to pre-empt Chinese competitors from acquiring their way into a foreign market, global corporations may end up paying too much in the counter-bidding," said Howard Yu, professor of strategic management and innovation at IMD, Geneva.

REUTERS