DealBook: UBS Aided Purchase of Stake in Chinese Insurer

Aly Song/ReutersA worker cleans the windows of a building in front of the Ping An Insurance building in Shanghai.

SHANGHAI — The Swiss banking giant UBS made a $5.5 billion loan early this year to help a Thai company acquire a 15.6 percent stake in China’s Ping An Insurance Group, according to people briefed on the deal.

The loan helps explain how the Charoen Pokphand Group, an agribusiness giant based in Thailand, was able to complete one of the biggest deals ever in China, a $9.4 billion acquisition of shares in Ping An. The stake had long been held by the British bank HSBC, which had decided to sell to streamline its businesses.

The loan was crucial, people briefed on the transaction said, because it helped salvage a deal after several media outlets in China reported that the state-run China Development Bank withdrew financing from the Charoen Pokphand Group, also known as the CP Group, shortly before the regulatory deadline early this year.

UBS declined to comment on the loan, the details of which were disclosed earlier by Reuters.

But the people briefed on the deal said UBS had advised the CP Group on its acquisition of Ping An shares, and expected to earn about $100 million for its role in the transaction. These disclosures resolved a mystery of how the CP Group’s stake in Ping An was acquired without loans from the Chinese bank.

Executives at the privately held CP Group, controlled by the Thai billionaire Dhanin Chearavanont, could not be reached for comment. Spokesmen for HSBC and Ping An were also unavailable for comment Friday.

But a person who advised the CP Group said that the company had fully complied with regulations set by the China Insurance Regulatory Commission, which approved the deal.

The deal for Ping An stock was closely followed in Asia after one of China’s leading business publications, Caixin, reported that the CP deal was being financed in part by Chinese investors, Ping An managers and Thaksin Shinawatra, the former prime minister of Thailand.

Analysts consider Ping An one of the best-run Chinese financial firms, with major banking and insurance divisions.

The company was founded in Shenzhen in 1988, and got a lift from Chinese regulators in the late 1990s and early 2000s.

After Ping An’s initial public offering in 2004, the relatives of Wen Jiabao, the former Chinese prime minister, acquired a secret, indirect stake in the company, a stake that at one time was valued at $2.7 billion. Relatives of China’s former Central Bank chief, Dai Xianglong, also acquired an indirect stake in Ping An during the same time.

Mark Scott reported from London.

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Your Money: Fighting the Insurer Over Hurricane Sandy Damage

Four months after the storm, they are waiting to collect enough money from their flood insurance policy to repair the three-story, 150-year-old building that is their home. The water filled the five-foot crawl space under the house and rose to three feet on the first floor, which Mr. Kondaks had used as a painting studio and work space.

“Until you experience it, it’s hard to conceive,” Ms. Kondaks said. “You just think, ‘Water. Water cleans things. Water doesn’t destroy an 1860s house that has been here forever.’ ”

About a month after the storm hit, an insurance adjuster, representing the flood insurance company, arrived on the scene and spent a mere 20 minutes to estimate the cost of repairs, she said. The figure he came up with, about $49,000, is a fraction of what the couple said they expected to pay to restore their home to its prestorm condition.

As a result, Ms. Kondaks, who typically assists with her husband’s business installing fine stonework in homes, has instead been working on the claim as if it were her full-time job.

They surely aren’t the first storm victims to do battle with their insurer to try to collect what they believe they are owed. In their case, they say their dispute can be traced back to the insurance adjuster.

Adjusters are typically contractors hired by the insurers in the wake of a big storm. Known as “storm troopers,” they descend from all corners of the country to estimate what is called the “scope of loss,” or what it will take to put the home to its prestorm state.

“All of these guys are different,” said Leslie L. Knox, a public adjuster, who is hired by policyholders to help resolve disputes against their insurance companies. “Some are very knowledgeable, and some lack the experience necessary to handle the claims. There is such a dichotomy of talent out there.”

Flood policyholders typically dispute one of two things — what is covered by the policy and how it should be priced. In the Kondakses’ case, their public adjuster, Michael Palmiero of American Claims Adjusters in Brooklyn, said the scope of their loss had not been properly addressed by the insurance adjuster. “It was an impossible task to get him back to say, ‘You overlooked this. You need to sit down with us and we need to go over the whole file end to end.’ ”

A soft-spoken woman, Ms. Kondaks, who lives with her husband on the top two floors of their building, acknowledges that they are lucky compared with many other victims of Hurricane Sandy. But when she speaks about the problem with her insurer, she sounds as if she has been to war. From the way the couple has been treated by their insurance company, she said, “It’s getting hard to believe we even had a flood.” The adjuster submitted his final report “without reviewing any of the painstaking amount of documentation we provided — photographs, labor sheets, receipts and real estimates,” she added.

Those documents explained that, among a long list of other items, the couple had to remove five layers of flooring. Each layer held water for weeks after the storm, compromising the joists underneath, which are still exposed. “We are having to sanitize, scrape and seal every bit of wood that was exposed to salt water,” she said. “If we don’t do this, we risk dry rot setting in, not to mention mildew.”

The adjuster, working for Colonial Claims on behalf of Fidelity National Indemnity Insurance, estimated that the work on the floor joists would cost a mere $425, compared with the $2,927 projected by the contractor hired by the homeowners. The insurance adjuster’s overall report also excluded a stone floor and fixtures in the bathroom, insulation in the basement and a subfloor in the hallway, to name a few of the other missing items, she said.

Chinese Regulator’s Family Profited From Stake in Insurer

The regulator, Dai Xianglong, was the head of China’s central bank and also had oversight of the insurance industry in 2002, when a company his relatives helped control bought a big stake in Ping An Insurance that years later came to be worth billions of dollars. The insurer was drawing new investors ahead of a public stock offering after averting insolvency a few years earlier.

With growing attention on the wealth amassed by families of the politically powerful in China, the investments of Mr. Dai’s relatives illustrate that the riches extend beyond the families of the political elites to the families of regulators with control of the country’s most important business and financial levers. Mr. Dai, an economist, has since left his post with the central bank and now manages the country’s $150 billion social security fund, one of the world’s biggest investment funds.

How much the relatives made in the deal is not known, but analysts say the activity raises further doubts about whether the capital markets are sufficiently regulated in China.

Nicholas C. Howson, an expert in Chinese securities law at the University of Michigan Law School, said: “While not per se illegal or even evidence of corruption, these transactions feed into a problematic perception that is widespread in the P.R.C.: the relatives of China’s highest officials are given privileged access to pre-I.P.O. properties.” He was using the abbreviation for China’s official name, the People’s Republic of China.

The company that bought the Ping An stake was controlled by a group of investment firms, including two set up by Mr. Dai’s son-in-law, Che Feng, as well as other firms associated with Mr. Che’s relatives and business associates, the regulatory filings show.

The company, Dinghe Venture Capital, got the shares for an extremely good price, the records show, paying a small fraction of what a large British bank had paid per share just two months earlier. The company paid $55 million for its Ping An shares on Dec. 26, 2002. By 2007, the last time the value of the investment was made public, the shares were worth $3.1 billion.

In its investigation, The New York Times found no indication that Mr. Dai had been aware of his relatives’ activities, or that any law had been broken. But the relatives appeared to have made a fortune by investing in financial services companies over which Mr. Dai had regulatory authority.

In another instance, in November 2002, Dinghe acquired a big stake in Haitong Securities, a brokerage firm that also fell under Mr. Dai’s jurisdiction, according to the brokerage firm’s Shanghai prospectus.

By 2007, just after Haitong’s public listing in Shanghai, those shares were worth about $1 billion, according to public filings. Later, between 2007 and 2010, Mr. Dai’s wife, Ke Yongzhen, was chairwoman on Haitong’s board of supervisors.

A spokesman for Mr. Dai and the National Social Security Fund did not return phone calls seeking comment. A spokeswoman for Mr. Che, the son-in-law, denied by e-mail that he had ever held a stake in Ping An. The spokeswoman said another businessman had bought the Ping An shares and then, facing financial difficulties, sold them to a group that included Mr. Che’s friends and relatives, but not Mr. Che.

The businessman “could not afford what he has created, so he had to sell his shares all at once,” the spokeswoman, Jenny Lau, wrote in an e-mail.

The corporate records reviewed by The Times, however, show that Mr. Che, his relatives and longtime business associates set up a complex web of companies that effectively gave him and the others control of Dinghe Venture Capital, which made the investments in Ping An and Haitong Securities. The records show that one of the companies later nominated Mr. Che to serve on the Ping An board of supervisors. His term ran from 2006 to 2009.

The Times reported last month that another investment company had also bought shares in Ping An Insurance at an unusually low price on the same day in 2002 as Dinghe Venture Capital. That company, Tianjin Taihong, was later partly controlled by relatives of Prime Minister Wen Jiabao, then serving as vice premier with oversight of China’s financial institutions. In late 2007, the shares Taihong bought in Ping An were valued at $3.7 billion.

The investments by Dinghe and Taihong are significant in part because by late 2002, Beijing regulators had granted Ping An an unusual waiver to rules that would have forced the insurer to sell off some divisions. Throughout the late 1990s, the company was fighting rules that would have required a breakup, a move that Ping An executives worried could lead to bankruptcy.