By Gwen Robinson and Jake Maxwell Watts
Dhanin Chearavanont, the 73-year-old patriarch of the Charoen Pokphand group of companies, told a business gathering in Bangkok some months ago the time was right for Thai companies to go shopping abroad. On Wednesday, Dhanin put his money where his mouth was, sealing a $9.4bn deal to buy HSBC’s entire 15.6 per cent stake in China’s second-largest insurer, Ping An.
But the move by CP Group, the unlisted umbrella for the vast network of CP subsidiaries and affiliates, surprised investors – not only as a departure from its focus on agribusiness, retail and telecoms, but also for the vast size of the deal.
It was one of the biggest ever by a Thai company and the second largest deal in Asia this year, after Chinese oil giant CNOOC’s planned $15.1bn takeover of Canada’s Nexen.
CP Group has extensive and diverse interests ranging from telco operator True to agribusiness company CP Foods, its Thai-listed flagship agribusiness, and convenience store operator CP All. The parent company this year sold down its holdings in CP Foods and CP All but still remains the biggest shareholder, with over 40 per cent in both companies.
CP has limited experience of the insurance business, confined to an unremarkable Thai joint venture formed in 2000 with Allianz of Germany. CP sold its stake in Allianz CP General Insurance in May for Bt300m ($9.8m).
The question is why CP Group, with its main interests in agribusiness, telecommunications and retailing, would make such a bold entry into China’s insurance market – as large and vibrant as it is.
Little in its steady China expansion would suggest interest in the insurance sector.
Dhanin rarely speaks in public but in two recent appearances at business gatherings in Bangkok, he predicted “another big leap forward” in China and urged Thai companies to invest in the country. He highlighted property-related industries, services and agriculture as among China’s most attractive sectors for investors.
He also said Thai companies should look further afield to Europe and the US where share prices of many companies had fallen to “very attractive levels” for outside investors.
As Dhanin observed, Thai companies are in growth mode. And Ping An’s strong position in China’s rapidly growing insurance industry looks ever more appealing, as the country’s aging middle class seeks to invest in pensions and retirement.
Since becoming the first multinational to invest in Chinese agribusiness in 1979, the group has developed vast interests in China, which now accounts for more than half its agribusiness profits plus substantial earnings from its Lotus supermarkets and a range of other businesses.
In China, CP Group is known as Chia Tai Group (Zheng Da Ji Tuan). Through more than 100 subsidiaries and affiliates it operates fully integrated agribusiness across 29 of China’s 31 provinces, manages more than 75 CP Lotus supermarkets and conducts business in the pharmaceutical, property development, automotive, banking and finance sectors.
Dhanin has built close relations with the country’s Communist Party leadership, which has given CP Group a lucrative role in its push to modernise its farm sector. As a result, CP has become the largest foreign lessee of land in China, securing long leases on more than 200,00 hectares of land for production of livestock feed, crops and poultry.
Thai media quoted a CP official saying that while Dhanin had wanted to exit the insurance business in Thailand, he was likely to have “adopted a different business view” in China, where the move into insurance comes alongside other efforts to diversify and expand.
There is also a clear sign of Chinese state support for CP’s Ping An deal: state-owned China Development Bank is helping to finance the Thai group’s acquisition of the HSBC stake, according to a statement by the UK bank.
The deal is worth slightly more than the $9bn net worth of Dhanin himself, as recently estimated by Forbes magazine, and the extent – as well as the terms – of any Chinese funding will determine whether analysts’ concerns about CP’s funding options are justified.
The ultimate motivation behind the Ping An deal, say some analysts, was a combination of Dhanin’s personal desire to further strengthen ties with Beijing, and Beijing’s encouragement for CP to take over the HSBC stake.
Dhanin was born in Thailand in 1938 but his links with China go back to his Chinese roots in Guangdong province. Dhanin’s father, Ek Chor, emigrated to Thailand with his brother, Siew Whooy, and established CP in 1921 as an agricultural seed shop.
The pair built the business aggressively, branching into production of animal feed and later, after Dhanin joined his elders, livestock farming, marketing and distribution. By the 1970s the company had built a monopoly on poultry and egg production in Thailand and branched out from there, moving into Indonesia, Japan and Singapore through the 1970s.
The group continued diversifying and expanding, added breeding farms, food processing operations and, later, a restaurant chain. By the early 2000s it was moving into more diverse businesses including telecommunications and retailing through its 7-Eleven franchise, under which it operates nearly 6,500 stores in Thailand.
In a business culture dominated by Thai-Chinese families, Dhanin has become a leading figure in the ethnic Chinese community. It was not a straight line to the top, however. The Asian financial crisis of 1997 and the plunge of the Thai baht inflicted massive losses on Dhanin and the CP Group. Ironically, it was HSBC, calling in $400m worth of loans in 1998, that inflicted the biggest hit.
Dhanin sold a swathe of non-core businesses and slashed costs. “I was prepared to use any means to ensure our survival,” he told Time magazine in 2004. “It felt bad, but I always believed we’d get it back tomorrow.”