| Tue 1 Dec 2009, 8:10 | | DSY - Discovery Agrees to Acquire up to 24.99% Stake in Ping An Health Insurance |
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DSY
DSY
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 Produced by the JSE SENS Department.
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