Following Taikang Life Insurance, another insurance company issued perpetual bonds
On December 1, CPIC Life successfully issued the first phase of perpetual bonds in 2023, with an issuance scale of 12 billion yuan and an issue interest rate of 35%。This interest rate is 20bp (basis points) lower than the previous interest rate of Taikang Life's perpetual bond issuance.
The issuance scale is 12 billion yuan, and the interest rate is 35%
An open-ended capital bond, also known as a "perpetual bond", refers to the issuance of capital supplementary bonds with no fixed maturity, with write-down or equity conversion clauses, which can absorb losses in both going concern and bankruptcy liquidation, and meet solvency regulatory requirements.
On October 23, CPIC Life Insurance was approved to publicly issue indefinite capital bonds in the national interbank bond market, with an issuance scale of no more than 20 billion yuan. In terms of the pace of issuance of perpetual bonds, CPIC Life Insurance chose to issue them in installments. The basic issuance scale is 10 billion yuan, with an excess issuance right of no more than 2 billion yuan, the bond term is 5+N years, the issuer's main rating and bond rating are AAA, and the inquiry range is 32%-4.0%, with a value date of December 5.
On December 1, "23 CPIC Life Insurance Perpetual Bond 01" was successfully issued, with an issuance scale of 12 billion yuan and an issue interest rate of 35%, the issuance period is 5+N, and the subscription multiple is 319 times.
According to the data of wind statistics, in late September and mid-October, the interest rates of 30 billion yuan of perpetual bonds issued by China Construction Bank and Postal Savings Bank were respectively42%, both of which are rated AAA in terms of entity rating and bond issuance, which means that the issuance interest rate of CPIC Life's first perpetual bonds is only slightly higher than that of similar bank perpetual bonds.
After all, perpetual bonds have no maturity date, which is more risky for investors and will expect higher interest rates. Insurance companies have just tested the waters in this area, 3The 5% interest rate is a little higher than that of the Postal Savings Bank, which is still quite good. An industry insider analyzed.
For the purpose of issuing perpetual bonds, CPIC Life said that the funds raised in this bond will be used to supplement the issuer's core Tier 2 capital, improve the issuer's solvency, create conditions for the healthy development of the issuer's business, and support the sustainable and steady development of the business in accordance with applicable laws and regulatory approvals.
CPIC Life's underwriting lineup for the first perpetual bonds is luxurious, with CICC as the lead underwriter and bookrunner, Guotai Junan** as the other lead underwriter, and Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Postal Savings Bank, China Merchants Bank and Shanghai Pudong Development Bank as joint lead underwriters.
According to the issuance information, from January to June 2023, CPIC Life achieved an operating income of 7581.8 billion yuan, insurance service income of 4286.5 billion yuan, net profit of 1402.3 billion yuan;As of the end of June 2023, the company's total assets were 187 trillion yuan, with a total debt of 176 trillion yuan, shareholders' equity is 1157RMB5.5 billion, with a comprehensive solvency adequacy ratio of 197% and a core solvency adequacy ratio of 112%.
A number of companies have been approved to issue perpetual bonds.
For insurance companies, perpetual bonds are an additional capital replenishment tool. In 2022, the C-ROSS II rules came into effect, and the identification of the core capital of life insurance companies became stricter, and the solvency of insurance companies, especially the core solvency, declined sharply. According to the data, as of the end of September 2023, the core solvency adequacy ratio of insurance companies dropped sharply to 126% from 220% at the end of 2021, of which the indicator of life insurance companies fell from 212% to 109%, and the decline was particularly significant.
Although there is still some safety room to meet the regulatory requirement of a core solvency adequacy ratio of at least 50%, the pressure on insurers to replenish core capital is rising.
In order to improve the capital replenishment mechanism of insurance companies, improve the risk resilience of the insurance industry, and protect the interests of investors, in August 2022, the People's Bank of China and the former China Banking and Insurance Regulatory Commission jointly issued the Notice on Matters Related to the Issuance of Indefinite Term Capital Bonds by Insurance Companies, allowing eligible insurance companies to issue indefinite term capital bonds, namely perpetual bonds. According to the regulations, insurance companies can supplement their core Tier 2 capital by issuing perpetual bonds, and the balance of perpetual bonds shall not exceed 30% of the core capital.
In November this year, Taikang Life issued its first perpetual bond of a listed insurance company. On September 13, Taikang Life Insurance was approved to publicly issue indefinite capital bonds in the national inter-bank bond market, with an issuance scale of no more than 20 billion yuan. On November 7, Taikang Life Insurance issued the first phase of 5 billion yuan, with a coupon rate of 37%, the issuance period is 5+n.
In addition to Taikang Life Insurance and CPIC Life Insurance, more perpetual bonds are being issued on the way.
On November 21, PICC Health was approved by the State Administration of Financial Supervision and Administration to publicly issue indefinite capital bonds in the national inter-bank bond market, with an issuance scale of no more than 2.5 billion yuanOn November 27, ABC Life Insurance was also approved to publicly issue no more than 2 billion yuan of non-fixed term capital bonds.
From an investment point of view, perpetual bonds have the risk of non-redemption, and have problems such as higher capital occupation than other bonds, reduced cost performance, and low initial market transaction activity, and the market demand is not too strong, but in the current asset shortage environment, there are fewer high-quality varieties, and financial institutions support each other, and other aspects, large insurance institutions have certain advantages in issuing perpetual bonds.
In addition to perpetual bonds, insurance companies are also supplementing capital by issuing capital supplementary bonds.
Like insurance perpetual bonds, capital supplementary bonds can also be used to meet the needs of capital replenishment and improve the solvency of insurance companies, but there are obvious differences between perpetual bonds and capital supplementary bonds in terms of supplementary capital types, issuers, write-downs and equity conversion terms.
On July 12, New China Life Insurance was approved to publicly issue 10-year redeemable capital supplementary bonds in the national inter-bank bond market, with an issuance scale of no more than 20 billion yuanOn August 25, CCB Life Insurance was approved to publicly issue 10-year redeemable capital supplementary bonds in the national inter-bank bond market, with an issuance scale of no more than 4 billion yuan. On October 10, Sunshine Life Insurance was approved to publicly issue 10-year redeemable capital supplementary bonds in the national inter-bank bond market, with an issuance scale of no more than 12 billion yuan.
Chinese Life announced on the evening of November 29 that in order to cope with the potential risk of capital fluctuations and continue to maintain the stability and adequacy of solvency, Chinese Life intends to issue a total of no more than 35 billion yuan of capital supplementary bonds in China at one time or in installments, and the funds raised by such domestic capital supplementary bonds will be used to supplement the company's affiliated Tier 1 capital in accordance with applicable laws and regulatory approvals to support the sustainable and steady development of the business.
Editor-in-charge: Tao Jiyan |Review: Li Zhen |Supervisor: Wan Junwei.
*: Brokerage China).