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DSY - Discovery Agrees to Acquire up to 24.99% Stake in Ping An Health Insurance

Release Date: 01/12/2009 08:10
Code(s): DSY
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DSY - Discovery Agrees to Acquire up to 24.99% Stake in Ping An Health Insurance Co. of China Ltd, the Health Insurance Subsidiary of Ping An Insurance (Group) Company Of China, Ltd Discovery Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1999/007789/06) (Share code: DSY & ISIN: ZAE000022331) ("Discovery") DISCOVERY AGREES TO ACQUIRE UP TO 24.99% STAKE IN PING AN HEALTH INSURANCE CO. OF CHINA LTD, THE HEALTH INSURANCE SUBSIDIARY OF PING AN INSURANCE (GROUP) COMPANY OF CHINA, LTD 1. Introduction Shareholders are advised that Discovery has entered into a non-binding term sheet dated 30 November 2009 with Ping An Insurance (Group) Company of China, Ltd. ("Ping An Group") pursuant to which Discovery proposes to acquire up to a 24.99% share in its wholly-owned health insurance subsidiary, Ping An Health Insurance Co. of China Ltd. ("Ping An Health"). 2. Background to the Chinese health insurance market In 2007, China spent approximately 4.5% of GDP on healthcare. Despite the increase in the proportion of the population covered by the state run Social Health Insurance ("SHI") system, deductibles, co-payments and low benefit limits under SHI result in financial shortfalls for covered patients. A defined schedule of treatments, drugs and service facilities and locations of service covered by SHI further limits the extent of protection provided by the SHI system. As a result, it is currently estimated that between 50% and 60% of the total expenditure on healthcare in China is paid for out-of-pocket by the patient. Only 6% of this out-of-pocket spend is covered by commercial health insurance. 3. Background to Ping An Group of China and Ping An Health Founded in 1988, Ping An Group was the first financial conglomerate to be established in China with insurance as its core business. As at 30th June 2009, the consolidated total assets and total equity of the Group were RMB 885.4 billion and RMB 101.8 billion, respectively, under International Financial Reporting Standards (IFRS). The Group offers financial services including insurance, banking, investment and wealth management to about 47 million customers and over two million corporate clients. In 2007, the estimated gross written premium for the Chinese commercial health insurance market, excluding critical illness policies, was 19 billion Yuan (approximately R21 billion). Of this, Ping An Group has a market share of approximately 28%. Ping An Group has established this strong market position by selling individual and group ancillary health products. However, there is a growing need for health insurance products focused on providing cover outside of the SHI schedule of benefits, including cover for foreign invested facilities which provide international standard healthcare ("SHI Plus"). Ping An Health was founded on 13th of June, 2005, under the regulation of the China Insurance Regulatory Commission. It is a specialist health insurance company owned by Ping An Group of China with a registered capital of RMB 500 million and is headquartered in Shanghai. Ping An Health provides a range of of health insurance and ancillary services. In the past three years, sales at Ping An Health have increased more than 400%, demonstrating a sustained and strong growth momentum. 4. Rationale for the investment in Ping An Health Ping An Health will draw on Discovery`s extensive health product Intellectual Property, and risk management structures and expertise, and the Ping An Group`s comprehensive distribution network infrastructure and brand in the Chinese market. 5. Capital requirements Ping An Health is currently well capitalised, with registered capital of 500 million Yuan (approximately R 550 million). Given the growth aspirations of Ping An Health, it is likely that it will require additional capital in the medium term. Hence, Discovery has agreed to subscribe for new shares, rather than buying existing shares. 6. Financial effects According to the term sheet, Discovery will acquire up to a 24.99% stake of Ping An Health. The consideration will be subject to certain closing adjustments and is not expected to exceed of 5% of Discovery`s market capitalisation and is not expected to have a significant effect on the earnings per share, headline earnings per share, net asset value per share or net tangible asset value per share of Discovery. 7. Conditions precedent The conclusion of the transaction is subject to agreement of legally binding documentation, following which it will be subject to various conditions precedents, including: - obtaining the requisite approval from the China Insurance Regulatory Commission; and - obtaining the requisite approval from the South African Reserve Bank. Sandton 1 December 2009 Merchant bank and sponsor RAND MERCHANT BANK (A division of FirstRand Bank Limited) Legal advisors in South Africa Edward Nathan Sonnenbergs Date: 01/12/2009 08:10:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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