China Life steps into property with AETOS tie-up
Updated: 2007-06-20 15:07
China Life Insurance Co. Ltd. will source property deals for AETOS Capital, a step that could lead to full-scale building purchases if China further widens the scope of investments open to insurers.
In a deal signed this week, China Life Asset Management Co., Ltd. will earn a commission by setting up investments for AETOS, which plans to spend at least $1.2 billion on Chinese property, according to Kenny Tse, a managing director at AETOS.
"They have a pretty deep network with a lot of state-owned enterprises," Tse told Reuters in a phone interview from Beijing. "We're hoping for a lot of large-scale projects".
Although property investment gives insurance firms the steady income they need to balance long-term liabilities, the Chinese government has held back on giving the go-ahead for insurers to invest because it fears a property bubble is forming.
But with Chinese stock markets highly volatile and government bonds giving low yields, many in the property industry believe it is just a matter of time before insurers are allowed to buy property.
That could unleash as much as $30 billion into the sector if Chinese insurers follow the European and U.S. lead of 10-15 percent allocations to property. ADVERTISEMENT
"There's a lot of talk about insurance companies in China eventually diversifying into property," Tse said.
Yang Huabai, a director at the China Insurance Regulatory Commission, was quoted in local media in February as saying China was changing the law to widen the scope of investment.
Last year authorities allowed insurers to invest in banks and infrastructure and they have issued guidelines paving the way for investment in asset-backed securities and venture capital.
In fact, Chinese insurers have long been property investors on the sly -- taking advantage of being allowed to own their own headquarters and branch offices, but leasing out a lot of space.
Some insurers are already getting a nod for projects on an ad-hoc basis.
China's second biggest life insurer Ping An Insurance Group entered a $127 million joint venture in November to build shopping centres anchored by Wal-Mart Stores Inc. .
China Life owns 20 percent of Beijing's Oriental Plaza shopping, office and apartment complex.
Chinese insurers have spent around $1.3 billion on property, a local newspaper reported in February, citing industry estimates.
AETOS Capital, which raised a $2.2 billion fund last year from some of the biggest U.S. institutional investors, has earmarked at least $600 million of equity for China, which will be supplmented by about the same amount in borrowing.
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