PICC to raise solvency margin via subordinated debt

"PICC Property and Casualty Co. Ltd. [77633], the largest n domestic nonlife insurer in China, said it will issue not more than 8 billion yuan (US$1.2 billion) in 10-year subordinated term debt securities to raise its solvency margin, subject to shareholder and regulatory approval.

The insurer said the decision has been made after ?conscientiously comparing various proposals' to meet itscapital needs and considering ?the current low interest rate environment.?

PICC said the terms and conditions of such an issue, including issue date, issue size and interest rates, will be determined by the board of directors after taking into account ?the market conditions and all other relevant factors,? according to an announcement filed with the Hong Kong Stock Exchange.

Pandora Leung, an equity analyst at KGI Group in Hong Kong, told BestWeek Asia/Pacific that PICC has decided to issue such debt mainly due to the recent sharp drop of PICC?s share price, wich present the company with financial risk. The share price drop negatively affects PICC's financial situation as the insurer?s capital size is probably ?inadequate? to support its financial stability, she said.

Leung said the insurer?s existing solvency margin is ?too low? at 105.2 by the end of June 2008, far below the Chinese regulator?s solvency margin requirement of 150 -- another reason for its debts issuing.

Leung said the issuing of 8 billion yuan in subordinated debt could help PICC ?ease its financial stress.?

Beijing-based PICC also confirmed that it has decided ?not to participate in the intended capital increase of its associated company, PICC Life.? The insurer did not provide further information about its decision.

According a separate announcement filed with the Hong Kong Stock Exchange, PICC's equity interests in PICC Life ?will be diluted to approximately 14% of the registered capital as enlarged by the capital increase from 28%.?

The proceeds raised from PICC Life will be used for ?business development and satisfying regulatory requirements,? said PICC in a statement.

PICC Life in a joint stock limited company established in China and is mainly engaged in life insurance, health insurance, accidental injury insurance and the related reinsurance business in the country, as well as insurance fund applications.

PICC Life is a subsidiary of the People?s Insurance Company (Group) of China, the controlling shareholder of PICC, which currently holds 51% of the registered capital of PICC Life directly."

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