HSBC Sells Bao Viet Stake in Vietnam to Sumitomo Life

Sumitomo Life Insurance will buy HSBC Holdings Plc’s (HSBA) 18 percent stake in Vietnam’s biggest insurer Bao Viet Holdings (BVH) for 7.1 trillion dong ($340 million) in cash.

The sale is expected to complete in the first quarter of 2013, according to an e-mailed press release from HSBC today, ending the pair’s five-year partnership.

Sumitomo Life’s acquisition comes amid mounting interest from Japanese firms in Vietnam’s financial sector, as economic contraction and deflation limits earnings growth at home. A stake in Bao Viet, the country’s seventh-largest listed company by market capitalization, may provide long-term growth potential from a nascent insurance market and a widening middle-class.

“They are the leader in the insurance business and that’s a fast growing industry in Vietnam,” said Vu Thanh Tu, research manager at Viet Capital Securities Co. “A lot of people still don’t have life insurance and it’s a huge market.”

Bao Viet shares closed about 5 percent higher at 33,900 dong ahead of the announcement. The stock has fallen 17 percent this year, lagging a 14 percent advance in the country’s benchmark VN Index. HSBC shares fell 0.1 percent to 652.20 pence as of 6:01 pm in Hanoi.

“Life insurance in Japan has reached saturation point, while Vietnam, with its large population and high ratio of young population, has a lot of potential to develop in the future,” Sumitomo Life’s President Yoshio Sato said at a press conference in Hanoi today. The company will enter discussions with Bao Viet to develop insurance products in Vietnam, he said.

HSBC acquired a 10 percent stake in Bao Viet in 2007 for 4.12 trillion dong, becoming the insurer’s sole foreign strategic partner. It bought a further 8 percent in a 1.88 trillion dong deal completed in January 2010. The London-based bank said Aug. 9 that it was reviewing options for its stake in Bao Viet.

“This transaction represents further progress in the execution of the Group’s strategy, allowing us to focus our capital and resources on the growth of our core businesses,” HSBC’s Asia Pacific Chief Executive Officer Peter Wong said in today’s press release.

HSBC’s Chief Executive Officer Stuart Gulliver is seeking to cut costs by as much as $3.5 billion by the end of 2013 and boost returns by selling assets to focus on growing economies in which the bank has the greatest market share. The lender is cutting 30,000 jobs and agreed in March to sell some of its general insurance units in Asia and Latin America for about $914 million. The bank Dec. 5 agreed to sell its stake in China’s Ping An Insurance (Group) Co. to Thai billionaire Dhanin Chearavanont for $9.4 billion, the 37th divestment under Gulliver.

HSBC’s Bao Viet exit contrasts with a rising Japanese presence in Vietnam’s financial sector. Mizuho Financial Group Inc. (8411) spent $560 million this year acquiring a 15 percent stake in Joint-Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender, is seeking to buy a 20 percent stake in Vietnam Joint Stock Commercial Bank For Industry and Trade, or VietinBank, from the Vietnamese government, two officials from the Tokyo-based bank said Dec. 13.

“The Japanese are long term players and this makes sense from a long term point of view,” Fiachra MacCana, managing director of Ho Chi Minh City Securities Corp., said of the Sumitomo Life deal. “There’s no growth in Japan - every Japanese corporation sees its survival in expanding overseas and buying assets overseas.”

Bao Viet’s nine-month pretax profit rose 28 percent to 1.31 trillion dong, the company said in a Nov. 15 e-mailed statement. Full-year pretax profit may increase 13 percent to 1.72 trillion dong, online newspaper TTVN reported Nov. 26 citing Hoang Viet Ha, the insurer’s operations director.