The insurance broker has reached an agreement that it will receive up to $1 billion in new investments with its just-acquired wealth management company, Puyi Wealth.
Focus
Singapore-based Huade Group has agreed to invest up to US$500 million each in Pan-China Holdings Group and Puyi Wealth.
The latest in a series of deals orchestrated by Pan-Huawei to accelerate its growth.
This article was written by Liang Wuren.
Insurance brokerage companiesPan-China Holding Group(fanh.US) is trying to boost weak growth, at a time when it's increasingly resembling a low-key trading machine.
companyAnnounced last weekIt is associated with the recent acquisition of a wealth management companyPuyi Wealth(puyi.US) has secured significant new investments, adding significant new additions to its recent series of transactions that could be a key driver of its growth. Now, investors will be waiting to see if it can really achieve this growth as easily as it can take control of their own finances.
On Friday, Pan-China and Puyi Wealth said a consortium led by Singapore-based private equity firm Ward Group would invest up to $500 million in each company. This new funding is a huge amount of money for both Pan-China and Puyi Wealth, surpassing the latest market capitalization of less than $400 million for each of the two companies.
This amount is also more than double Pan-China's cash holdings as of the end of September last year, and more than three times that of Puyi Wealth. Last month, Puyi Wealth and some shareholders also signed an agreement to raise $13 million through new and existing shares from an entity called New Dragon Investments.
Neither Pan-China nor Puyi Wealth provided further details about the new financing, so it is unclear to what extent existing shareholders' equity will be diluted by the issuance of new shares to Huade Group, and that a new deal of this magnitude will almost certainly involve the issuance of new shares. There is also speculation about how the two companies will use the new money. Pan-China and Puyi Wealth said they would finalise the details of the investment agreement "soon".
Shares of both companies did not react much to the news, suggesting that investors may still be waiting for more details before making a judgment. Many people may not be familiar with Huade Group, which is a Singapore-based boutique investment firm founded in 2005 and mainly invests in companies in China and Southeast Asia, according to its official website.
At the helm of the CW Group is Peh Chin Wah, who spent more than a decade in Singapore politics until the early 21st century. But Walter claims he also has more than 50 years of experience in real estate, publishing and finance. As a businessman, his most famous achievement appears to be the founding of the property development company Dragon Land, which later went public in Singapore. Reflecting this background, Huade Group's portfolio focuses on the real estate sector. But judging by its investment in AI robotics development companies, mobile health platforms, and unmanned convenience store operators, the company also seems to be interested in technology-driven companies.
Huade Group's growing focus on technology companies may be what attracted Pan-China and Puyi Wealth. Pan-China is looking to transform from an old-school insurer to a technology-driven insurance platform operator, offering a range of services including IT systems and digital solutions.
Technology is the priority
As a result, Pan-China may use the new funding from the Huade Group to acquire technologies that will help accelerate the digitalization process. Huade Group may have similar plans for Puyi Wealth, adding more technology-based services beyond its core wealth management business. Given the Huade Group's relationship with the Southeast Asian region, it seems feasible for the two companies to enter the Southeast Asian market through acquisitions. When Chinese companies are ready to go global, Southeast Asia is often the first overseas market they seek to grow.
This scenario looks more likely, as Huade Group is likely to become a majority shareholder in Pan-China and Puyi if it invests, meaning it will be involved in the management of both companies.
Prior to this announcement, Pan-China's latest deal was its marriage to Puyi Wealth. The incident occurred two months ago, when a group of Pan-China shareholders, including CEO Hu Yinan, conducted a share swap in which they received about 77% of the shares of Puyi, which in turn received 501% of the shares. Pan-China shareholders paid a high premium for the acquisition of a majority stake in Puyi, perhaps because Puyi Wealth had already planned to do more, and Huade Group invested two months later.
From Pan-China's perspective, the bargain for the deal in December was the acquisition of a majority stake in Puyi Wealth without spending a penny. At the same time, Pan-China shareholders still control Pan-China through a majority stake in Puyi Wealth. Prior to the marriage between Pan-China and Puyi Wealth, the former had already made three acquisitions in the first quarter of last year, all of which were through equity exchanges.
Pan-China's acquisition efforts are understandable, as it is looking for ways to boost profits amid China's economic slowdown. The company's revenue in the first nine months of last year increased by only 1 percent year-on-year6%, but since September last yearCheche Technology(ccg.US) after its initial public offering, the value of Pan-China's holdings in the stock increased, causing its net profit to surge.
The pressure to improve its financial position is even greater for Puyi Wealth, which saw its revenue fall by nearly a third year-on-year in the second half of last year. Both companies are dealing with a weakening economy as China's economic growth slows and consumers become increasingly reluctant to buy non-essential items such as insurance. At the same time, the weakness of China's ** and real estate markets has also made ** investors hesitant to buy wealth management products of Puyi Wealth.
Pan-China currently has a track record of only 6 times P/E. But its forward price-to-earnings ratio is as high as 20 times, reflecting investors' expectation of a significant decline in its earnings. At the same time, the loss-making P&T ratio of Puyi Wealth is as high as 24 times, a figure that seems a bit too high given the recent outlook for China** and the real estate market.
All of this may make investors wonder what is in Huade Group's ambitious investment plan to boost the profitability of Pan-China and Puyi Wealth and validate their high valuations. Can the Walter Group become that white knight and save these companies from their bleak prospects? We'll have to wait for more details on its new investment plans to find out more.