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China insurer PICC debut shines through Hong Kong IPO gloom

By Elzio Barreto and Denny Thomas

HONG KONG (Reuters) - Shares in Chinese state-owned insurer PICC Group surged nearly 7 percent in its Hong Kong trading debut on Friday, a rare bright spot in an otherwise dismal year for initial public offerings in the city and most other big regional markets.

PICC's strong start is unlikely to kick-start the Hong Kong IPO market, which is headed for its worst fund raising year since the onset of the global financial crisis in 2008, after being the world's IPO capital in 2009 and 2010.

"You have to judge the success of the transaction over the next few days and weeks, rather than just today," said Philippe Espinasse, a former investment banker with Nomura and UBS in Hong Kong and author of 'IPO: A Global Guide'.

"I'm a bit skeptical (about a surge in IPOs). It'll take more than one deal for the market to fully reopen," he added.

People's Insurance Company (Group) of China, as the company is widely known, is among the last of the big state-owned companies to go public.

That process kicked off in the 1990s, when large oil companies, banks and insurers began to tap public markets as China started to liberalize its vast and underdeveloped economy.

Conglomerate CITIC Group, Postal Bank of China and China Minmetals Corporation Group are among the remaining large state-owned companies expected to list in the coming years, bankers say. For years, the IPOs of Chinese state-owned enterprises in Hong Kong was the main fee earner for global investment banks.

STRONG DEBUT

PICC jumped as much as 8 percent earlier in the session as retail investors who missed out on shares in its $3.1 billion IPO, the largest in Hong Kong in two years, scrambled on board.

Only 7.5 percent of the IPO was open for retail investors, while about 58 percent of the deal was covered by so-called cornerstone investors, including bailed-out U.S. insurer American International Group, who have committed to hold their shares for at least six months.

That allocation resulted in retail investors bidding for 17.5 times more than the number of shares offered, the company said, leaving plenty of individual investors looking to scoop up shares on Friday.

Founded in 1949, PICC is China's first nationwide insurer, with 2.42 million institutional clients and about 130 million individual customers, exceeding the entire population of Japan.

Investors buying into PICC shares are betting on a continued rise in China's insurance market, the world's sixth largest, where life and non-life premiums have recorded 22.1 percent and 24.8 percent growth respectively between 2006 and 2011, according to figures from the country's insurance regulator.

Swiss Re forecasts China life insurance premiums to grow 8 percent and non-life insurance premiums to expand 13 percent in 2013, compared with a low single digit forecast for developed markets.

China is also one of the most underdeveloped life insurance markets in the world, with a penetration ratio of just 1.8 percent at the end of 2011, compared with 8.8 percent in Japan and 3.6 percent in the United States, Swiss Re said.

"The life part of the business is growing fast and will become a bigger part of the group going forward," Sally Yim, a senior credit officer at Moody's Investors Service in Hong Kong. "And the company will require more capital to meet the rapid growth in life insurance."

LUCKY EIGHT?

Given the tough markets, PICC left nothing to chance to get the offer over the line.

As well as hiring a record 17 banks and securing $1.82 billion in cornerstone commitments, the company also leaned on the auspicious number eight, which is thought to be lucky in China and across much of the region.

Some glimpses of that emerged when the company set the yuan price range of the offer that ended in eight. Last Thursday, PICC held its first media photo opportunity for the IPO, timing the event for 12:58 p.m. to 1:58 p.m.

The following day PICC called the media conference between 4:48 pm to 5:58 pm and then the IPO itself was priced at HK$3.48, again emphasizing the importance of the number.

"It's solely coincidence," PICC's Wu said, after gifting Hong Kong exchange officials a golden elephant and a golden bull, both symbols of good luck and prosperity.

Despite the late boost to deal volumes from PICC, new listings in Hong Kong are down 63 percent in 2012, according to Thomson Reuters data.

PICC priced the IPO shares at HK$3.48 each, near the bottom of its marketing range. On Friday the shares closed at HK$3.72, up 6.9 percent, while the benchmark Hang Seng index lost 0.3 percent.

"The prices we saw today reflect people's confidence and expectations in us," PICC Group's Chairman Wu Yan said during a ceremony at the Hong Kong stock exchange. "Everyone has the same confidence in us as we have in ourselves."

The gains were a rare success in a difficult capital markets environment in Hong Kong, where some IPO hopefuls have delayed offers or sharply scaled back fund raising plans.

PICC was the top Hong Kong IPO since AIA Group Ltd's $20.5 billion offer in 2010 and No. 2 IPO in Asia-Pacific ex-Japan's in 2012 after Malaysian plantation company Felda Global Ventures Holdings $3.3 billion deal.

Across the region, only the Southeast Asian markets of Malaysia, Philippines and Thailand have seen a surge in IPO issuance, with volumes down more than 60 percent in China and South Korea and 40 percent in Singapore.

China International Capital Corp (CICC), Credit Suisse Group AG, Goldman Sachs Group Inc and HSBC Holdings Plc acted as sponsors of the IPO.

(Additional reporting Yimou Lee; Editing by Alex Richardson and Richard Pullin)

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