Ping An stands by HSBC spin-off call but says it is not an activist investor

© Reuters. FILE PHOTO: The company logo of Ping An Insurance is seen in Beijing, China, August 27, 2020. REUTERS/Thomas Peter/File Photo

By Selena Li

HONG KONG (Reuters) - China's Ping An Insurance Group defended its call to spin off HSBC's Asia business, saying it cared about investment returns from its large stake in Europe's biggest bank but was not an activist investor.

"It is a significant investment and we've invested in it for seven years," Jessica Tan, Ping An's co-CEO, told Reuters on Wednesday, when asked about the drivers behind the insurer urging HSBC to consider a spin-off.

Ping An is HSBC's largest shareholder with an 8.3% stake worth around $10.3 billion, according to Refinitiv data.

"We care much about long-term returns," Tan said.

"We are not an activist investor."

Ping An's top management had not commented publicly on the HSBC spin-off call before Wednesday. The remarks show that the Chinese company does not intend to relent on its stance despite the lender's recent pushback against a break-up move.

HSBC did not have an immediate comment in response to Tan's remarks.

The London-headquartered bank, which makes the bulk of its sales and profit in Asia, came under pressure from Ping An in April to explore options including listing its Asia business to increase shareholder returns.

Earlier this month, HSBC's chairman and CEO were grilled for more than an hour on its strategy for dividends and growth during a shareholder meeting in Hong Kong that was attended by hundreds of its retail shareholders.

The standoff with Ping An highlights the challenges facing the British bank, as it seeks to navigate geopolitical tensions between the United States, Britain and China amid criticism from lawmakers in the West over the bank's activities in Hong Kong.

Speaking to reporters at its results briefing on Wednesday, Ping An's Chief Investment Officer Deng Bin said the insurer maintains "an open and supportive attitude towards any measures, suggestions and opinions to improve" the performance and efficiency of HSBC.

"As a unit of long-term cooperation, we hope it will do better and better. What happens in the future depends on HSBC, and we support it in all its efforts," Deng added.

So far, there have been no institutional shareholders who have backed Ping An's call, at least publicly, to break up HSBC.

A lack of a clear rationale and challenges to get other shareholders on board is preventing Ping An's proposal from being considered seriously by the market, said one Hong Kong-based financial analyst.

"HSBC's returns are going to improve this year and next year on interest rate hikes and restructuring of the business. "Now that the bank is more profitable, it doesn't make sense" for Ping An to push for a split of HSBC, the analyst said.

LONG-TERM HIT

HSBC has said a break-up would mean a potential long-term hit to the bank's credit rating, tax bill and operating costs, and bring immediate risks in executing any spin-off or merger.

A source has said Ping An was of the view that HSBC was overstating the risks of a potential spin-off, and such a step would generate an extra $25 billion-$35 billion in market value..

The Chinese insurer's holdings in HSBC took a hit from the bank's weak performance in recent years. HSBC's Hong Kong shares have fallen by 42% from their five-year peak in 2018, with a suspension in dividend payment two years ago dragging on Ping An's investment income.

Hong Kong-traded shares of Ping An rose 2.3% on Wednesday after its first-half profit exceeded expectations. HSBC's shares dipped 1.2%.